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Leases | 12 Months Ended
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Dec. 31, 2021
Leases [Abstract] |
Leases |
Note 8 · Leases
The Company leases certain real estate and equipment for various terms under long-term operating lease agreements. The agreements expire at various dates through 2054 and provide for renewal options up to 10 years. The periods associated with the renewal options are excluded for the purpose of determining the lease term unless the exercise of the renewal option is reasonably certain. In the normal course of business, it is expected that many of these agreements will be replaced by similar agreements. Certain real estate leases require the Company to pay for operating expenses such as common area maintenance, real estate taxes and insurance, which are recognized as variable lease expense when incurred and are not included in the measurement of the lease liability. The Company elected the short-term lease recognition exemption for all of its leases that qualify, and accordingly, does not recognize lease liabilities and ROU assets for all leases that have lease terms that are 12 months or less. The amounts related to short-term leases are not material. The Company elected the practical expedient to not separate lease and non-lease components for its real estate and equipment and fossil fuel and renewable energy PPAs. Additionally, the Utilities contract with independent power producers to supply energy under long-term power purchase agreements. Certain PPAs are treated as operating leases under the lease standard because the Company elected the practical expedient package under which prior conclusions about lease identification were not reassessed. The fixed capacity payments under the PPAs are included in the lease liability, while the variable lease payments (e.g., payments based on kWh) are excluded from the lease liability. Several as-available PPAs have variable-only payment terms based on production. For PPAs with no minimum lease payments, the Utilities do not recognize any lease liabilities or ROU assets, and the related costs are reported as variable lease costs. In the first quarter of 2021, PGV returned to service with firm capacity of 13 MW and ramped up to 23.9 MW in the second quarter of 2021. Hawaii Electric Light is required to make fixed capacity payments based on 23.9 MW. As of December 31, 2021, Hawaii Electric Light has a total of $21 million in lease liability with a corresponding ROU asset for the PGV PPA . The Utilities’ lease payments for each operating lease agreement were discounted using its estimated unsecured borrowing rates for the appropriate term, reduced for the estimated impact of collateral, which is a reduction of approximately 25 basis points. ASB’s lease payments for each operating lease agreement were discounted using Federal Home Loan Bank of Des Moines (FHLB) fixed rate advance rates, which are collateralized, for the appropriate term. The FHLB is ASB’s primary wholesale funding source and can provide collateralized borrowing rates for various terms starting at overnight borrowings to 30-year borrowing terms. In August 2019, Hawaiian Electric entered into a lease agreement for a total office space of approximately 195,000 square feet in downtown Honolulu to lower costs and bring together office workers currently in separate leased buildings. The lease consists of two different phases with commencement dates of January 2020 and January 2021, respectively, and is an operating lease for a term of 12 years with various options to extend up to 10 years. Annual base rent expense for each phase is approximately $1.9 million and $1.7 million, respectively, and the operating lease liability recorded upon commencement of each phase was $21 million and $19 million, respectively. In addition to the annual base rent payments that are included in the lease liability, there are additional payments for operating expenses, which are recognized as variable lease cost when incurred. These payments are related to operating expenses, such as common area maintenance, various taxes and insurance. Under the terms of the lease, Hawaiian Electric is entitled to receive up to $5.0 million and $4.6 million in tenant incentives for various office improvements for each phase, respectively. The amounts were included as a reduction to the initial measurement of the ROU asset on each respective commencement date, and will be subsequently adjusted if the actual reimbursements are different from the initial amounts previously recognized. As of December 31, 2021 and 2020, total amount of office improvements for both phases were $5.7 million and $2.6 million, respectively. In December 2020, Hawaiian Electric entered into an agreement with an unrelated party to sublease out approximately 64,000 square feet of the downtown Honolulu office space commencing in January 2021. The sublease is an operating lease for six and a half years with an option to extend the term for an additional two years. Estimated base rent revenue is approximately $8.3 million for the entire lease term. In addition to the base rent, Hawaiian Electric will also collect from the sublessee its proportionate share of all operating expenses, utilities, and taxes, which will be recognized as an additional rent revenue. In August 2021, the Utilities entered into an agreement with an unrelated party for exclusive use of a barge and tug to transport fuels between islands, commencing in January 2022. The contract is an operating lease with a term of five years with an option to extend the term for an additional five years. Annual base rent expense is approximately $6.2 million and the operating lease liability recorded upon commencement was $32 million. In addition to the annual base payment, there are additional payments for operating expenses, such as inspection expense, wharfage and pipeline tolls, which are recognized as variable lease cost when incurred. Amounts related to the Company’s total lease cost and cash flows arising from lease transactions are as follows:
| HEI consolidated |  | Hawaiian Electric consolidated
Year ended December 31, 2021 | Other leases | PPAs classified as leases | Total |  | Other leases | PPAs classified as leases | Total
(dollars in thousands) |  |  |  |  |  |  |
Operating lease cost | $ | 14,184 |  | $ | 66,070 |  | $ | 80,254 |  |  | $ | 8,578 |  | $ | 66,070 |  | $ | 74,648 |
Variable lease cost | 14,360 |  | 257,472 |  | 271,832 |  |  | 11,586 |  | 257,472 |  | 269,058 |
Sublease income | (2,515) |  | — |  | (2,515) |  |  | (2,515) |  | — |  | (2,515) |
Total lease cost | $ | 26,029 |  | $ | 323,542 |  | $ | 349,571 |  |  | $ | 17,649 |  | $ | 323,542 |  | $ | 341,191 |
Other information |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases | $ | 11,239 |  | $ | 62,136 |  | $ | 73,375 |  |  | $ | 6,168 |  | $ | 62,136 |  | $ | 68,304 |
Weighted-average remaining lease term—operating leases (in years) | 9.1 | 2.5 | 6.1 |  | 10.0 | 2.5 | 5.9
Weighted-average discount rate—operating leases | 2.84 | % | 3.63 | % | 3.18 | % |  | 2.98 | % | 3.63 | % | 3.31 | %
| HEI consolidated |  | Hawaiian Electric consolidated
Year ended December 31, 2020 | Other leases | PPAs classified as leases | Total |  | Other leases | PPAs classified as leases | Total
(dollars in thousands) |  |  |  |  |  |  |
Operating lease cost | $ | 11,201 |  | $ | 63,319 |  | $ | 74,520 |  |  | $ | 6,022 |  | $ | 63,319 |  | $ | 69,341 |
Variable lease cost | 12,765 |  | 217,173 |  | 229,938 |  |  | 9,842 |  | 217,173 |  | 227,015 |
Total lease cost | $ | 23,966 |  | $ | 280,492 |  | $ | 304,458 |  |  | $ | 15,864 |  | $ | 280,492 |  | $ | 296,356 |
Other information |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases | $ | 10,783 |  | $ | 60,801 |  | $ | 71,584 |  |  | $ | 6,223 |  | $ | 60,801 |  | $ | 67,024 |
Weighted-average remaining lease term—operating leases (in years) | 8.9 | 1.8 | 4.4 |  | 10.1 | 1.8 | 3.8
Weighted-average discount rate—operating leases | 2.87 | % | 4.08 | % | 3.61 | % |  | 3.20 | % | 4.08 | % | 3.84 | %
The following table summarizes the maturity of our operating lease liabilities as of December 31, 2021:
| HEI consolidated |  | Hawaiian Electric consolidated
(in millions) | Other leases | PPAs classified as leases | Total |  | Other leases | PPAs classified as leases | Total
2022 | $ | 11 |  | $ | 46 |  | $ | 57 |  |  | $ | 6 |  | $ | 46 |  | $ | 52 |
2023 | 13 |  | 4 |  | 17 |  |  | 8 |  | 4 |  | 12 |
2024 | 11 |  | 4 |  | 15 |  |  | 7 |  | 4 |  | 11 |
2025 | 7 |  | 4 |  | 11 |  |  | 5 |  | 4 |  | 9 |
2026 | 7 |  | 3 |  | 10 |  |  | 5 |  | 3 |  | 8 |
Thereafter | 36 |  | 4 |  | 40 |  |  | 30 |  | 4 |  | 34 |
Total lease payments | 85 |  | 65 |  | 150 |  |  | 61 |  | 65 |  | 126 |
Less: Imputed interest | (11) |  | (2) |  | (13) |  |  | (9) |  | (2) |  | (11) |
Total present value of lease payments 1 | $ | 74 |  | $ | 63 |  | $ | 137 |  |  | $ | 52 |  | $ | 63 |  | $ | 115 |
1The fixed capacity payment related to the existing PPA with PGV, which will expire on December 31, 2027, is included as a lease liability as of December 31, 2021. The PGV facility returned to service with firm capacity in the first quarter of 2021. The annual capacity payment based on the most recent accepted output is approximately $3.8 million. The lease liability will be remeasured when PGV ramps back up to the original contracted firm capacity.
Leases |
Note 8 · Leases
The Company leases certain real estate and equipment for various terms under long-term operating lease agreements. The agreements expire at various dates through 2054 and provide for renewal options up to 10 years. The periods associated with the renewal options are excluded for the purpose of determining the lease term unless the exercise of the renewal option is reasonably certain. In the normal course of business, it is expected that many of these agreements will be replaced by similar agreements. Certain real estate leases require the Company to pay for operating expenses such as common area maintenance, real estate taxes and insurance, which are recognized as variable lease expense when incurred and are not included in the measurement of the lease liability. The Company elected the short-term lease recognition exemption for all of its leases that qualify, and accordingly, does not recognize lease liabilities and ROU assets for all leases that have lease terms that are 12 months or less. The amounts related to short-term leases are not material. The Company elected the practical expedient to not separate lease and non-lease components for its real estate and equipment and fossil fuel and renewable energy PPAs. Additionally, the Utilities contract with independent power producers to supply energy under long-term power purchase agreements. Certain PPAs are treated as operating leases under the lease standard because the Company elected the practical expedient package under which prior conclusions about lease identification were not reassessed. The fixed capacity payments under the PPAs are included in the lease liability, while the variable lease payments (e.g., payments based on kWh) are excluded from the lease liability. Several as-available PPAs have variable-only payment terms based on production. For PPAs with no minimum lease payments, the Utilities do not recognize any lease liabilities or ROU assets, and the related costs are reported as variable lease costs. In the first quarter of 2021, PGV returned to service with firm capacity of 13 MW and ramped up to 23.9 MW in the second quarter of 2021. Hawaii Electric Light is required to make fixed capacity payments based on 23.9 MW. As of December 31, 2021, Hawaii Electric Light has a total of $21 million in lease liability with a corresponding ROU asset for the PGV PPA . The Utilities’ lease payments for each operating lease agreement were discounted using its estimated unsecured borrowing rates for the appropriate term, reduced for the estimated impact of collateral, which is a reduction of approximately 25 basis points. ASB’s lease payments for each operating lease agreement were discounted using Federal Home Loan Bank of Des Moines (FHLB) fixed rate advance rates, which are collateralized, for the appropriate term. The FHLB is ASB’s primary wholesale funding source and can provide collateralized borrowing rates for various terms starting at overnight borrowings to 30-year borrowing terms. In August 2019, Hawaiian Electric entered into a lease agreement for a total office space of approximately 195,000 square feet in downtown Honolulu to lower costs and bring together office workers currently in separate leased buildings. The lease consists of two different phases with commencement dates of January 2020 and January 2021, respectively, and is an operating lease for a term of 12 years with various options to extend up to 10 years. Annual base rent expense for each phase is approximately $1.9 million and $1.7 million, respectively, and the operating lease liability recorded upon commencement of each phase was $21 million and $19 million, respectively. In addition to the annual base rent payments that are included in the lease liability, there are additional payments for operating expenses, which are recognized as variable lease cost when incurred. These payments are related to operating expenses, such as common area maintenance, various taxes and insurance. Under the terms of the lease, Hawaiian Electric is entitled to receive up to $5.0 million and $4.6 million in tenant incentives for various office improvements for each phase, respectively. The amounts were included as a reduction to the initial measurement of the ROU asset on each respective commencement date, and will be subsequently adjusted if the actual reimbursements are different from the initial amounts previously recognized. As of December 31, 2021 and 2020, total amount of office improvements for both phases were $5.7 million and $2.6 million, respectively. In December 2020, Hawaiian Electric entered into an agreement with an unrelated party to sublease out approximately 64,000 square feet of the downtown Honolulu office space commencing in January 2021. The sublease is an operating lease for six and a half years with an option to extend the term for an additional two years. Estimated base rent revenue is approximately $8.3 million for the entire lease term. In addition to the base rent, Hawaiian Electric will also collect from the sublessee its proportionate share of all operating expenses, utilities, and taxes, which will be recognized as an additional rent revenue. In August 2021, the Utilities entered into an agreement with an unrelated party for exclusive use of a barge and tug to transport fuels between islands, commencing in January 2022. The contract is an operating lease with a term of five years with an option to extend the term for an additional five years. Annual base rent expense is approximately $6.2 million and the operating lease liability recorded upon commencement was $32 million. In addition to the annual base payment, there are additional payments for operating expenses, such as inspection expense, wharfage and pipeline tolls, which are recognized as variable lease cost when incurred. Amounts related to the Company’s total lease cost and cash flows arising from lease transactions are as follows:
| HEI consolidated |  | Hawaiian Electric consolidated
Year ended December 31, 2021 | Other leases | PPAs classified as leases | Total |  | Other leases | PPAs classified as leases | Total
(dollars in thousands) |  |  |  |  |  |  |
Operating lease cost | $ | 14,184 |  | $ | 66,070 |  | $ | 80,254 |  |  | $ | 8,578 |  | $ | 66,070 |  | $ | 74,648 |
Variable lease cost | 14,360 |  | 257,472 |  | 271,832 |  |  | 11,586 |  | 257,472 |  | 269,058 |
Sublease income | (2,515) |  | — |  | (2,515) |  |  | (2,515) |  | — |  | (2,515) |
Total lease cost | $ | 26,029 |  | $ | 323,542 |  | $ | 349,571 |  |  | $ | 17,649 |  | $ | 323,542 |  | $ | 341,191 |
Other information |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases | $ | 11,239 |  | $ | 62,136 |  | $ | 73,375 |  |  | $ | 6,168 |  | $ | 62,136 |  | $ | 68,304 |
Weighted-average remaining lease term—operating leases (in years) | 9.1 | 2.5 | 6.1 |  | 10.0 | 2.5 | 5.9
Weighted-average discount rate—operating leases | 2.84 | % | 3.63 | % | 3.18 | % |  | 2.98 | % | 3.63 | % | 3.31 | %
| HEI consolidated |  | Hawaiian Electric consolidated
Year ended December 31, 2020 | Other leases | PPAs classified as leases | Total |  | Other leases | PPAs classified as leases | Total
(dollars in thousands) |  |  |  |  |  |  |
Operating lease cost | $ | 11,201 |  | $ | 63,319 |  | $ | 74,520 |  |  | $ | 6,022 |  | $ | 63,319 |  | $ | 69,341 |
Variable lease cost | 12,765 |  | 217,173 |  | 229,938 |  |  | 9,842 |  | 217,173 |  | 227,015 |
Total lease cost | $ | 23,966 |  | $ | 280,492 |  | $ | 304,458 |  |  | $ | 15,864 |  | $ | 280,492 |  | $ | 296,356 |
Other information |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases | $ | 10,783 |  | $ | 60,801 |  | $ | 71,584 |  |  | $ | 6,223 |  | $ | 60,801 |  | $ | 67,024 |
Weighted-average remaining lease term—operating leases (in years) | 8.9 | 1.8 | 4.4 |  | 10.1 | 1.8 | 3.8
Weighted-average discount rate—operating leases | 2.87 | % | 4.08 | % | 3.61 | % |  | 3.20 | % | 4.08 | % | 3.84 | %
The following table summarizes the maturity of our operating lease liabilities as of December 31, 2021:
| HEI consolidated |  | Hawaiian Electric consolidated
(in millions) | Other leases | PPAs classified as leases | Total |  | Other leases | PPAs classified as leases | Total
2022 | $ | 11 |  | $ | 46 |  | $ | 57 |  |  | $ | 6 |  | $ | 46 |  | $ | 52 |
2023 | 13 |  | 4 |  | 17 |  |  | 8 |  | 4 |  | 12 |
2024 | 11 |  | 4 |  | 15 |  |  | 7 |  | 4 |  | 11 |
2025 | 7 |  | 4 |  | 11 |  |  | 5 |  | 4 |  | 9 |
2026 | 7 |  | 3 |  | 10 |  |  | 5 |  | 3 |  | 8 |
Thereafter | 36 |  | 4 |  | 40 |  |  | 30 |  | 4 |  | 34 |
Total lease payments | 85 |  | 65 |  | 150 |  |  | 61 |  | 65 |  | 126 |
Less: Imputed interest | (11) |  | (2) |  | (13) |  |  | (9) |  | (2) |  | (11) |
Total present value of lease payments 1 | $ | 74 |  | $ | 63 |  | $ | 137 |  |  | $ | 52 |  | $ | 63 |  | $ | 115 |
1The fixed capacity payment related to the existing PPA with PGV, which will expire on December 31, 2027, is included as a lease liability as of December 31, 2021. The PGV facility returned to service with firm capacity in the first quarter of 2021. The annual capacity payment based on the most recent accepted output is approximately $3.8 million. The lease liability will be remeasured when PGV ramps back up to the original contracted firm capacity.

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