Hawaiian Electric Industries, Inc. — 2022 Form 10-K Summary
Business context and reporting period. This combined filing covers Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) for the fiscal year ended December 31, 2022, compared mainly with 2021. HEI operates regulated electric utilities serving about 95% of Hawaii’s population, American Savings Bank (ASB), and Pacific Current, a renewable-energy and infrastructure business. Utility and bank figures below are segment or subsidiary measures and should not be added to consolidated results without considering eliminations.
Key financial metrics
| Metric | 2022 | 2021 | Change and context |
|---|---|---|---|
| HEI revenue | $3.742 billion | $2.850 billion | Up 31%, largely reflecting higher utility fuel and purchased-power costs passed through to customers. |
| HEI operating income | $381 million | $386 million | Down 1%. |
| HEI net income for common stock / diluted EPS | $241 million / $2.20 | $246 million / $2.25 | Down 2%; lower ASB earnings outweighed utility improvement. |
| HEI dividends per share | $1.40 | $1.36 | Up 3%. The board later approved a quarterly increase from $0.35 to $0.36 beginning in Q1 2023. |
| HEI operating cash flow | $454 million | $376 million | Investing cash flow was $(1.129) billion and financing cash flow was $568 million in 2022; consolidated cash flow includes ASB banking activity. |
| HEI cash and cash equivalents | $200 million | $306 million | At year-end. HEI had $50 million of commercial paper outstanding and $175 million of unused revolving capacity. |
| HEI common equity | $2.202 billion | $2.391 billion | Lower largely amid investment-securities and other comprehensive losses. |
| Utility revenue / net income for common stock | $3.409 billion / $189 million | $2.540 billion / $178 million | Revenue rose sharply with fuel costs; net income increased 6%. |
| ASB net interest income / net interest margin | $252.6 million / 2.89% | $237.2 million / 2.91% | Income increased, but margin edged down as funding costs rose. |
| ASB net income | $80 million | $101 million | Down 21%, including the comparison with a $25.8 million reserve release in 2021. |
Debt, liquidity and capital
- HEI’s capital structure included $173 million of short-term borrowings and $2.385 billion of long-term debt, excluding bank deposits and other bank borrowings. Hawaiian Electric had $88 million of commercial paper outstanding, $1.685 billion of long-term debt and $39 million of cash.
- ASB had $9.55 billion of assets, $8.17 billion of deposits and $695 million of other borrowings at year-end. Its loans held for investment, net, were $5.91 billion. ASB reported $1.6 billion of unused FHLB borrowing capacity and was classified as well-capitalized.
- ASB’s loan portfolio grew 15% to $6.005 billion before allowance and deferred fees. About 83% of loans were primarily real-estate-collateralized. Nonaccrual loans fell to $16.5 million from $45.0 million; delinquent loans were 0.23% of loans versus 0.33%.
- ASB’s total investment securities were $2.681 billion, down 13%. Its available-for-sale portfolio fair value was $1.430 billion versus $2.575 billion. The bank transferred securities with $755 million fair value to held-to-maturity in October 2022; the transferred securities had a $206 million unrealized loss at transfer. HEI reported a $328.9 million net unrealized securities loss in accumulated other comprehensive income at year-end.
- Utility operating cash flow was $328 million, capital expenditures were $329 million, and net cash used in investing was $324 million. Utility customer receivables increased $101 million year over year, mainly as fuel-driven bills rose. Management said liquidity and capital-market access remained adequate.
Material changes versus 2021
- Utility revenue increased 34% to $3.409 billion, while fuel oil expense rose to $1.266 billion from $644 million and purchased-power expense rose to $794 million from $670 million. Average fuel cost per barrel increased to $141.49 from $80.06. Fuel and most purchased-power costs are substantially recoverable through regulatory clauses, but higher bills can pressure customer payment capacity and working capital.
- Utility electricity sales volume rose 1.1% from 2021 but remained 4.4% below 2019. The utility’s renewable portfolio standard (RPS) measure was 31.8% under the revised calculation, versus 38.4% in 2021; the 2022 result would have been 39.1% under the prior method.
- ASB’s net interest income benefited from higher rates and earning assets, but net interest margin slipped to 2.89% from 2.91%. Funding shifted toward borrowings as deposit growth slowed: deposits represented 92% of funding sources at year-end versus 99% in 2021.
- ASB’s allowance for credit losses was $72.2 million, compared with $71.1 million at year-end 2021. The 2022 provision was $2.0 million, versus a $25.8 million negative provision in 2021.
- HEI’s regulatory assets fell to $243 million from $566 million, while regulatory liabilities rose to $1.056 billion from $997 million. The utility’s funded pension and postretirement liability also declined substantially, to $50 million from $322 million.
Outlook, management commentary and risks
- HEI expects cash, subsidiary operating cash flow, credit facilities and capital-market access to cover requirements under current plans, while noting uncertainty from fuel prices, inflation, higher rates and economic conditions. Utilities forecast approximately $2.2 billion of net capital expenditures over 2023–2027, principally for grid replacement and modernization, renewable integration, resilience and reliability.
- Hawaii’s PBR framework provides annual revenue adjustments and other recovery mechanisms; no general utility rate cases are scheduled during the five-year multi-year rate period. The PUC approved net 2023 annual revenue adjustments of $33.5 million. Recovery of $11.4 million of deferred COVID-19 utility costs remained subject to PUC consideration.
- The Utilities target a 70% reduction in power-generation carbon emissions by 2030 versus 2005 and net-zero power-generation emissions by 2045 or sooner. Management said the 2030 target remained achievable, but delays, cancellations, supply-chain constraints, inflation and additional procurement needs pose execution risks. The Utilities estimate fossil fuel will supply 75% of net energy generated in 2023, compared with 67% in 2022.
- The last coal-fired plant in Hawaii ceased operations in September 2022. Several renewable projects experienced delays, cancellations or requests for revised pricing and schedules. The PUC denied the Hu Honua biomass PPA; an appeal was pending. Project timing and cost, reliability during the transition, RPS compliance and recovery of retired-plant costs are material watch items.
- Other risks include the Utilities’ isolated island grids; reliance on fuel suppliers and independent power producers; weather, climate and wildfire exposure; regulatory decisions affecting cost recovery; and ASB’s sensitivity to interest rates, deposit competition and Hawaii real-estate conditions. The Utilities disclosed that their transmission and distribution system, with an estimated replacement value of roughly $9 billion, is largely uninsured and they carry no business-interruption insurance.
- Environmental and legal matters include a $9.9 million reserve for Pearl Harbor sediment investigation and remediation and a $2.6 million reserve for the former Molokai generation site. The filing says the ultimate outcome of the related Molokai lawsuit and possible loss could not be determined. Management did not expect aggregate pending utility proceedings to be material to financial position, while acknowledging potential period-specific effects.
- Independent auditors issued unqualified opinions on HEI’s and Hawaiian Electric’s financial statements. HEI’s internal control over financial reporting was audited and found effective; Hawaiian Electric’s management reported effective controls, but its controls were not separately audited.
Important facts for investors to verify
- Whether fuel and purchased-power cost recovery keeps pace with costs, customer collections and working-capital needs, especially as bills and receivables rise.
- ASB’s deposit retention, borrowing costs, net interest margin and credit quality as rates and the Hawaii economy change; also monitor the large unrealized securities losses and liquidity implications.
- Progress, revised costs and commercial-operation dates for renewable projects, and the PUC’s decisions on project recovery, RPS compliance and deferred COVID-19 costs.
- HEI’s debt refinancing needs, available committed liquidity and ability to fund the projected $2.2 billion utility capital program while maintaining dividends.
- Updates to the Hu Honua appeal, Molokai site litigation and environmental remediation estimates, as well as any changes in insurance coverage or utility system exposure.