Hawaiian Electric Industries, Inc. (HEI) — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited combined filing covers the quarter and six months ended June 30, 2022. HEI operates Hawaiian Electric’s regulated electric utilities, American Savings Bank (ASB), and Pacific Current. Amounts below are in U.S. dollars; financial results are HEI consolidated unless otherwise stated.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $895.6m | $680.3m | $1,680.7m | $1,323.2m |
| Operating income | $86.7m | $101.9m | $185.9m | $199.9m |
| Net income attributable to common stock | $52.5m | $63.9m | $121.7m | $128.2m |
| Diluted EPS | $0.48 | $0.58 | $1.11 | $1.17 |
| Operating margin | 9.7% | 15.0% | 11.1% | 15.1% |
- Revenue and earnings: Q2 revenue rose 32% and first-half revenue rose 27%, driven primarily by higher electric utility revenue as fuel and purchased-power costs increased and were largely passed through to customers. HEI common net income fell 18% in Q2 and 5% for the first half. The decline reflected weaker ASB results, partly offset by improved utility earnings.
- Segments: Utility common-stock income was $44.1m in Q2 and $90.5m in the first half, versus $41.9m and $85.3m in 2021. ASB net income was $17.5m and $41.3m, versus $30.3m and $59.8m, respectively. ASB’s prior-year results benefited from substantially larger releases in credit-loss provisions.
- Margins and costs: Utility operating income increased modestly, but fuel and purchased-power expenses rose sharply. Average fuel oil cost per barrel was $139.51 in Q2 versus $73.58 a year earlier. ASB’s net interest margin was 2.85% in Q2 versus 2.98% a year earlier; it was 2.82% for the first half versus 2.97%.
- Cash flow: HEI generated $74.6m of operating cash flow in the first half, down from $117.6m. Investing used $497.0m and financing provided $276.0m. Cash and cash equivalents were $159.7m at June 30, 2022, down from $305.6m at year-end. Hawaiian Electric alone generated $44.2m of operating cash flow, down from $57.5m.
- Debt and liquidity: HEI reported $2.375bn of long-term debt and $124m of short-term borrowings other than bank borrowings. Hawaiian Electric reported $1.737bn of long-term debt (including current portion) and $55m of short-term borrowings. HEI and Hawaiian Electric had no revolver balances and committed facilities of $175m and $200m, respectively; combined availability net of commercial paper was approximately $251m. ASB had approximately $2.0bn of unused FHLB borrowing capacity. Hawaiian Electric issued $60m of unsecured notes at a 3.7% coupon, maturing in 2032.
- Bank balance sheet and capital: ASB deposits were $8.254bn, net loans $5.358bn, and assets $9.215bn. ASB remained well-capitalized, with a 7.7% Tier 1 leverage ratio and 12.8% common equity Tier 1 ratio.
- Other notable items: HEI’s available-for-sale securities were $2.444bn at fair value. ASB reported $241.3m of after-tax unrealized securities losses in accumulated other comprehensive loss, versus $32.0m at year-end 2021, principally from market-rate changes. HEI paid a quarterly dividend of $0.35 per share; first-half payout ratio was 63%.
Material changes, outlook, risks and contingencies
- Management outlook: No specific earnings or revenue guidance is provided in the supplied filing text. HEI said it currently expects to maintain the dividend at its present level, subject to quarterly Board review. Management considered liquidity adequate for planned needs, while noting that elevated fuel prices and lingering economic effects could keep utility working-capital requirements higher.
- Capital plans and energy transition: The utilities forecast up to $2.1bn of net capital expenditures for 2022–2026: about $1.3bn for asset replacement and modernization, $0.5bn for climate and resilience projects, and $0.3bn for reliability. The state’s last coal-fired independent power plant was scheduled to cease operations September 1, 2022. Management described reliability risks during the transition, including delays to renewable projects, supply-chain constraints, inflation, and potential outages from aging generation assets. The utilities’ 2030 plan targets a 70% reduction in generation emissions from a 2005 baseline; the company has also committed to net-zero generation emissions by 2045 or sooner.
- Fuel, inflation and customer collections: Management cited rapidly higher fuel costs and inflation, with potential knock-on effects on customer affordability, arrears, bad debt, operating and capital costs, and regulatory decisions. About $42m of utility receivables were 30 days past due at quarter-end; management said delayed collections had not significantly affected liquidity to date. The utilities filed to recover up to $27.8m of deferred COVID-related costs over three years, beginning June 2023; the request was pending.
- Regulatory and project uncertainty: The PUC approved additional performance mechanisms in June 2022, but implementation details and effective dates remained pending. Several renewable projects faced delays or cancellations, and approvals or cost recovery are subject to PUC decisions. The PUC denied the Hu Honua biomass PPA in May 2022; reconsideration was denied and Hu Honua appealed. The Kalaeloa PPA extension was pending PUC approval, and the AES Hawaii PPA was due to expire September 1, 2022.
- Contingencies: Hawaiian Electric recorded reserves of $2.7m for remediation at the former Molokai generation site and $10.1m for investigation and remediation relating to PCB contamination near Waiau Power Plant. Management said aggregate legal-proceeding liabilities were not expected to be material to financial position, but could affect results or liquidity in a particular future period. The ultimate outcomes and final remediation costs remain uncertain.
- Subsequent event: On July 1, 2022, a Pacific Current subsidiary acquired a 7.5 MW biomass facility on Kauai and assumed approximately $61m of long-term debt; quarterly principal and interest total about $1.2m.
- Other risks: ASB’s earnings and securities values are sensitive to interest-rate changes. HEI also highlights credit and deposit risks, regulatory and environmental developments, renewable-resource performance, cybersecurity, access to capital, and Hawaii’s concentrated economic exposure. Fitch revised HEI’s and Hawaiian Electric’s outlooks to Positive in June 2022 and affirmed their respective BBB and BBB+ long-term issuer ratings.
Most important facts for investors to verify
- Whether higher fuel and purchased-power costs continue to be recovered promptly through utility adjustment mechanisms, and how they affect customer affordability and collections.
- Whether ASB’s credit-loss provisions, loan growth, net interest margin, and securities-related unrealized losses evolve as interest rates and the economy change.
- Whether generation and renewable-project transitions preserve reliability and meet regulatory milestones, including the coal plant retirement and delayed or revised project schedules.
- PUC decisions on deferred COVID-cost recovery, pending projects and tariffs, performance mechanisms, and utility capital recovery.
- How forecast capital spending, debt issuance, cash generation, dividends, and the Kauai biomass acquisition affect liquidity and leverage.