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Basis of presentation | 6 Months Ended
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Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of presentation | Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited condensed consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s and Hawaiian Electric’s Form 10-K for the year ended December 31, 2017. In the opinion of HEI’s and Hawaiian Electric’s management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments required by GAAP to fairly state consolidated HEI’s and Hawaiian Electric’s financial positions as of June 30, 2018 and December 31, 2017 and the results of their operations for the three and six months ended June 30, 2018 and 2017 and cash flows for the six months ended June 30, 2018 and 2017. All such adjustments are of a normal recurring nature, unless otherwise disclosed below or in other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year. Recent accounting pronouncements. Revenues from contracts with customers. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of the guidance in ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company and Hawaiian Electric adopted ASU No. 2014-09 (and subsequently issued revenue-related ASUs, as applicable) in the first quarter of 2018. There was no cumulative effect adjustment and no impact on the timing or pattern of revenue recognition, but ASU No. 2014-09 required changes with respect to the Company’s and Hawaiian Electric’s revenue disclosures. See Note 7. Financial instruments. In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which, among other things:
• | Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
• | Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
• | Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables).
• | Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.
The Company adopted ASU No. 2016-01 in the first quarter of 2018 and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated financial statements. Cash flows. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on eight specific cash flow issues - debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The Company adopted ASU No. 2016-15 in the first quarter of 2018 using a retrospective transition method and there was no impact from the adoption to the Company’s and Hawaiian Electric’s consolidated statements of cash flows. Restricted cash. In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted ASU No. 2016-18 in the first quarter of 2018 using a retrospective transition method and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated statements of cash flows. Definition of a Business. In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations—Clarifying the Definition of a Business.” This update clarifies the definition of a business and adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted ASU No. 2017-01 in the first quarter of 2018 and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated financial statements. Net periodic pension cost and net periodic postretirement benefit cost. In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost (NPPC) and net periodic postretirement benefit cost (NPBC) as defined in paragraphs 715-30-35-4 and 715-60-35-9 to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization under GAAP, when applicable. The Company adopted ASU No. 2017-07 in the first quarter of 2018: (1) retrospectively for the presentation in the income statement of the service cost component and the other components of NPPC and NPBC, and (2) prospectively for the capitalization in assets of the service cost component of NPPC and NPBC for Hawaiian Electric and its subsidiaries. HEI and ASB do not capitalize pension and OPEB costs. In settlement agreements in the 2018 Maui Electric, 2017 Hawaiian Electric and 2016 Hawaii Electric Light rate cases, Maui Electric, Hawaiian Electric and Hawaii Electric Light, respectively, and the Consumer Advocate agreed to the deferral of the non-service cost components of NPPC and NPBC, which would have been capitalized prior to ASU No. 2017-07, as part of the pension tracking mechanism. The PUC approved this treatment in the final decision and order (D&O) in the Hawaiian Electric and Hawaii Electric Light rate cases. The treatment under the settlement agreements was followed beginning in 2018 until each utility’s next rate case. In each utility’s next rate case, rates established would include recovery of the deferred non-service cost components and seek to adopt the capitalization policy which reflects the requirements of ASU No. 2017-07 (i.e., only the service cost components of NPPC and NPBC will be capitalized). Thus, the adoption of ASU 2017-07 in the first quarter of 2018 does not have a net income impact. The following table summarizes the impact to the prior period financial statements of the adoption of ASU No. 2017-07:
| Three months ended June 30, 2017 |  | Six months ended June 30, 2017
(in thousands) | As previously filed | Adjustment from adoption of ASU No. 2017-07 | As currently reported |  | As previously filed | Adjustment from adoption of ASU No. 2017-07 | As currently reported
HEI Condensed Consolidated Income Statement |  |  |  |  |
Expenses |  |  |  |  |  |  |
Electric utility | $ | 501,828 |  | $ | (1,435 | ) | $ | 500,393 |  |  | $ | 971,501 |  | $ | (2,858 | ) | $ | 968,643 |
Bank | 50,533 |  | (201 | ) | 50,332 |  |  | 99,229 |  | (396 | ) | 98,833 |
Other | 4,024 |  | (270 | ) | 3,754 |  |  | 9,355 |  | (528 | ) | 8,827 |
Total expenses | 556,385 |  | (1,906 | ) | 554,479 |  |  | 1,080,085 |  | (3,782 | ) | 1,076,303 |
Operating income |  |  |  |  |  |  |
Electric utility | 55,047 |  | 1,435 |  | 56,482 |  |  | 103,985 |  | 2,858 |  | 106,843 |
Bank | 24,796 |  | 201 |  | 24,997 |  |  | 48,956 |  | 396 |  | 49,352 |
Other | (3,947 | ) | 270 |  | (3,677 | ) |  | (9,183 | ) | 528 |  | (8,655 | )
Total operating income | 75,896 |  | 1,906 |  | 77,802 |  |  | 143,758 |  | 3,782 |  | 147,540 |
Retirement defined benefits expense--other than service costs | — |  | (1,906 | ) | (1,906 | ) |  | — |  | (3,782 | ) | (3,782 | )
Hawaiian Electric Condensed Consolidated Income Statement |  |  |  |
Other operation and maintenance | 106,374 |  | (1,435 | ) | 104,939 |  |  | 206,614 |  | (2,858 | ) | 203,756 |
Total expense | 501,828 |  | (1,435 | ) | 500,393 |  |  | 971,501 |  | (2,858 | ) | 968,643 |
Operating income | 55,047 |  | 1,435 |  | 56,482 |  |  | 103,985 |  | 2,858 |  | 106,843 |
Retirement defined benefits expense--other than service costs | — |  | (1,435 | ) | (1,435 | ) |  | — |  | (2,858 | ) | (2,858 | )
Hawaiian Electric Condensed Consolidating Income Statement (in Note 3) |  |  |  |  |  |  |
Hawaiian Electric (parent only) |  |  |  |  |  |  |
Other operation and maintenance | 70,961 |  | (1,302 | ) | 69,659 |  |  | 138,239 |  | (2,587 | ) | 135,652 |
Total expense | 357,575 |  | (1,302 | ) | 356,273 |  |  | 690,763 |  | (2,587 | ) | 688,176 |
Operating income | 36,839 |  | 1,302 |  | 38,141 |  |  | 66,494 |  | 2,587 |  | 69,081 |
Retirement defined benefits expense--other than service costs | — |  | (1,302 | ) | (1,302 | ) |  | — |  | (2,587 | ) | (2,587 | )
Hawaii Electric Light |  |  |  |  |  |  |
Other operation and maintenance | 17,558 |  | 85 |  | 17,643 |  |  | 33,074 |  | 168 |  | 33,242 |
Total expense | 72,903 |  | 85 |  | 72,988 |  |  | 141,400 |  | 168 |  | 141,568 |
Operating income | 8,807 |  | (85 | ) | 8,722 |  |  | 19,292 |  | (168 | ) | 19,124 |
Retirement defined benefits expense--other than service costs | — |  | 85 |  | 85 |  |  | — |  | 168 |  | 168 |
Maui Electric |  |  |  |  |  |  |
Other operation and maintenance | 17,855 |  | (218 | ) | 17,637 |  |  | 35,301 |  | (439 | ) | 34,862 |
Total expense | 71,350 |  | (218 | ) | 71,132 |  |  | 139,338 |  | (439 | ) | 138,899 |
Operating income | 9,415 |  | 218 |  | 9,633 |  |  | 18,220 |  | 439 |  | 18,659 |
Retirement defined benefits expense--other than service costs | — |  | (218 | ) | (218 | ) |  | — |  | (439 | ) | (439 | )
ASB Statements of Income Data (in Note 4) |  |  |  |  |  |
Compensation and employee benefits | 24,742 |  | (201 | ) | 24,541 |  |  | 47,979 |  | (396 | ) | 47,583 |
Other expense | 4,705 |  | 201 |  | 4,906 |  |  | 9,016 |  | 396 |  | 9,412 |
Derivatives and Hedging. In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which is intended to improve and simplify accounting rules around hedge accounting. The amendments in ASU No. 2017-12 improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The amendments also expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the new guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, but early adoption is permitted. The Company early adopted ASU No. 2017-12 in the second quarter of 2018, with an effective date of April 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements. Leases. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires that lessees recognize a liability to make lease payments (the lease liability) and a right-of-use asset, representing its right to use the underlying asset for the lease term, for all leases (except short-term leases) at the commencement date. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election and recognize lease expense for such leases generally on a straight-line basis over the lease term. For finance leases, a lessee is required to recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of income. For operating leases, a lessee is required to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. The Company plans to adopt ASU No. 2016-02 in the first quarter of 2019 and is currently analyzing the potential impact of adoption, including the impact of electing certain practical expedients available under the standard. The Company has reviewed its agreements and has compiled a preliminary inventory of its operating leases and other arrangements that meet the definition of a lease under the new standard. The Company is in the process of analyzing the measurement provisions of the new standard and their impact to its existing lease arrangements that fall within the scope of ASU No. 2016-02. Credit losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU No. 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date (based on historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU No. 2016-13 amends the accounting for credit losses on available-for-sale (AFS) debt securities and purchased financial assets with credit deterioration. The other-than-temporary impairment model of accounting for credit losses on AFS debt securities will be replaced with an estimate of expected credit losses only when the fair value is below the amortized cost of the asset. The length of time the fair value of an AFS debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists. The AFS debt security model will also require the use of an allowance to record the estimated losses (and subsequent recoveries). The accounting for the initial recognition of the estimated expected credit losses for purchased financial assets with credit deterioration would be recognized through an allowance for credit losses with an offset to the cost basis of the related financial asset at acquisition (i.e., there is no impact to net income at initial recognition). The Company plans to adopt ASU No. 2016-13 in the first quarter of 2020. The guidance is to be applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at the date of initial application. The Company has assembled a project team that meets regularly to evaluate the provisions of this ASU, identify additional data requirements necessary and determine an approach for implementation. The team has assigned roles and responsibilities and developed key tasks to complete and a general timeline to be followed. The Company is evaluating the effect that this ASU will have on the consolidated financial statements and disclosures. Economic conditions and the composition of the Company’s loan portfolio at the time of adoption will influence the extent of the adopting accounting adjustment. Condensed Consolidated Statements of Cash Flows error. Subsequent to the issuance of interim Condensed Consolidated Financial Statements (unaudited) for the quarter ended June 30, 2017, the Company and the Utilities identified an error within their previously reported interim Condensed Consolidated Statements of Cash Flows (unaudited). The timing of certain capital expenditure payments, including those that had retainage balances or were related to certain capitalized amounts were not reflected timely. The Company and the Utilities have evaluated the effect of the error, both qualitatively and quantitatively, and concluded that it is immaterial to their respective previously issued condensed consolidated financial statements. For the six months ended June 30, 2017, the correction of this error resulted in decreases in Net Cash Provided by Operating Activities (impacting the change in Accounts, Interest and Dividends Payable for the Company and Accounts Payable for the Utilities) and Net Cash Used in Investing Activities (impacting the Capital Expenditures for the Company and the Utilities) of $12 million. Reclassifications. Reclassifications made to prior year-end financial statements to conform to 2018 presentation include a reclassification of contributions in aid of construction (CIAC) balances to “Property, plant and equipment, net” and “Total property, plant and equipment, net” for the Company and Hawaiian Electric, respectively, which reduced the amounts of the respective balances.

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