Hawaiian Electric Industries, Inc. — FY 2023 Form 10-K
Reporting period: Year ended December 31, 2023. This combined filing covers HEI and its subsidiary Hawaiian Electric Company, Inc. HEI operates regulated electric utilities, American Savings Bank (ASB), and nonregulated clean-energy and infrastructure businesses. The figures below primarily describe HEI on a consolidated basis unless a segment is identified.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue | $3.682 billion | $3.742 billion |
| Operating income | $352.6 million | $381.1 million |
| Net income attributable to common stock | $199.2 million | $241.1 million |
| Diluted earnings per share | $1.81 | $2.20 |
| Net cash from operating activities | $551.5 million | $454.5 million |
| Net cash used in investing activities | $257.4 million | $1.129 billion |
| Cash and cash equivalents at year-end | $679.5 million | $199.9 million |
| Long-term debt, excluding bank borrowings | $2.842 billion | $2.385 billion |
- Revenue declined 1.6% and common net income fell 17%. Lower ASB earnings and a larger loss in Other more than offset higher utility earnings.
- Operating cash flow improved year over year. Investing cash use fell substantially, reflecting changes in bank securities and lending activity; consolidated capital expenditures were $448.3 million, principally for utility investment.
- HEI and Hawaiian Electric each drew their full revolving credit commitments—$175 million and $200 million, respectively. At year-end, both had no commercial paper outstanding and no remaining available capacity under those committed lines. HEI reported $137 million of cash and Hawaiian Electric $106 million; consolidated cash also includes ASB.
- HEI’s consolidated capital structure, excluding bank deposits and other bank borrowings, was 54% long-term debt and 45% common equity. Consolidated liabilities also include $8.146 billion of bank deposits and $750 million of other bank borrowings.
- HEI’s effective tax rate was 18.1%, compared with 20.1% in 2022. The reported dividend was $1.08 per share for 2023, but HEI suspended its quarterly common-stock cash dividend after the second-quarter dividend.
Operating segments
- Electric utility: Revenue was $3.270 billion, down from $3.409 billion; net income for common stock rose to $194.0 million from $188.9 million. Lower fuel and purchased-power costs reduced revenue and expense, while higher ARA revenue was partly offset by higher operating and maintenance costs. Electricity sales volume fell 1.5%; decoupling generally separates utility revenues from sales volume.
- ASB: Net income declined to $53.4 million from $80.0 million. Net interest margin decreased to 2.74% from 2.89%, as higher funding costs outweighed higher asset yields. The Bank recorded a $10.4 million provision for credit losses, versus $2.0 million, and a $15.0 million pretax loss on the sale of $185 million in securities.
- ASB balance sheet and credit: Year-end assets were $9.673 billion, deposits $8.146 billion, and net loans $6.106 billion. ASB held $435 million in cash and had approximately $1.9 billion of unused FHLB borrowing capacity. It was classified as well capitalized, with a 12.27% common equity Tier 1 ratio and a 13.38% total capital ratio. Delinquent loans rose to 0.65% of loans from 0.23%; nonaccrual loans increased to $28.4 million from $16.5 million.
Material changes, risks, and unusual items
- Maui wildfires and litigation: The August 8, 2023 fires caused extensive destruction and 101 confirmed fatalities in Lahaina, as reported in the filing. The cause of the Afternoon Fire that spread toward Lahaina had not been determined. HEI and the Utilities faced numerous lawsuits and investigations; the filing reported 108 lawsuits naming each as of February 27, 2024. The Company said it could not reasonably estimate additional potential losses or a range of loss and that losses beyond the expected $75 million contribution to the One ‘Ohana Initiative were reasonably possible.
- HEI recorded $138.4 million of wildfire-related expenses before $104.6 million of insurance recoveries and $14.7 million of PUC-approved deferrals, leaving $19.1 million net for 2023. The $75 million Initiative contribution was accrued with a corresponding insurance receivable. The Company disclosed $165 million of excess liability coverage for third-party claims and a separate $500 million property policy for specified utility assets; coverage may not be sufficient for total losses.
- Credit access and dividends: HEI and Hawaiian Electric were downgraded below investment grade in August 2023. Management said the downgrades restricted capital-market access, increased reliance on drawn credit facilities, and led to deferred or reduced discretionary spending. HEI suspended its dividend; ASB suspended dividends to HEI, and Hawaiian Electric reduced its fourth-quarter dividend to its parent.
- Utility liquidity and investment: Management believed available cash and expected operating cash flow were sufficient for short-term obligations, while emphasizing substantial longer-term uncertainty tied to wildfire claims, capital access, and subsidiary distributions. Hawaiian Electric was evaluating additional liquidity options; a February 2024 application sought approval for a secured accounts-receivable facility of up to $250 million.
- Regulatory accounting and wildfire costs: At December 31, 2023, utility regulatory assets were $294.8 million and regulatory liabilities were $1.151 billion. Recovery of wildfire-related deferred costs requires further PUC approval; denial could require expense recognition.
- Bank funding and rate sensitivity: Core deposit outflows were replaced with higher-cost certificates and borrowings. ASB’s $550 million Federal Reserve Bank Term Funding Program borrowing was due in March 2024, and it had $1.6 billion of uninsured deposits at year-end. Management cited satisfactory liquidity and capital, but higher rates, deposit competition, and weaker credit conditions remain risks.
- Outlook: The filing provides no specific earnings or EPS guidance. The Utilities expect the planned 70% reduction in power-generation carbon emissions from 2005 levels to be achieved later than the original 2030 target, citing project delays, costs, and credit-rating constraints; their net-zero generation goal remains 2045 or sooner. The 2023 renewable portfolio standard was 33.3%, with a statutory 40% milestone for 2030. The Utilities also expected potential generation shortfalls on Maui in 2024, with planned additions expected to satisfy reserve-margin analysis for 2025–2028.
The financial statements received unqualified audit opinions. Deloitte identified regulatory assets and liabilities, the allowance for credit losses, and wildfire-related tort claims as critical audit matters. HEI’s internal control over financial reporting was assessed as effective; Hawaiian Electric’s filing did not include an auditor opinion on its internal controls.
Important facts for investors to verify
- New developments in wildfire investigations, lawsuits, potential settlements or Initiative phases, insurance recoveries, and whether the Company can estimate additional exposure.
- Current credit ratings, access to funding, cash balances, available borrowing capacity, debt covenants, and any progress on the proposed secured credit facility.
- Whether subsidiary dividends remain suspended or restricted, and the duration and financial effect of HEI’s common-dividend suspension.
- PUC decisions on wildfire-cost recovery, regulatory-asset recoverability, and utility rate and performance mechanisms.
- ASB deposit retention, funding costs and upcoming borrowing maturities, alongside changes in delinquencies, nonaccrual loans, charge-offs, and credit-loss reserves.
- Progress on Maui restoration and generation reliability, renewable-project execution, the 2030 RPS milestone, and revised emissions targets.