Hawaiian Electric Industries, Inc. (HEI) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the information summarized here is primarily full-year, not standalone fourth-quarter results. The combined filing also reports separately for Hawaiian Electric Company, Inc. (the regulated utility subsidiary).
Business context and financial performance
HEI is a Hawaii-focused holding company with electric utility, banking (American Savings Bank, or ASB), and other businesses, including nonregulated clean-energy investments. The Utilities serve about 95% of Hawaii’s population; ASB had approximately $9.2 billion in assets.
| HEI consolidated | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $2.850 billion | $2.580 billion | +10% |
| Operating income | $386.1 million | $311.5 million | +24% |
| Net income attributable to common stock | $246.2 million | $197.8 million | +24% |
| Diluted EPS | $2.25 | $1.81 | +24% |
| Dividend per share | $1.36 | $1.32 | +3% |
| Operating cash flow | $375.7 million | $429.4 million | −12% |
HEI’s operating margin was approximately 13.5% in 2021, versus 12.1% in 2020; net income for common stock was about 8.6% of revenue. The filing reports net income by segment of $177.6 million for the Utilities, $101.2 million for the Bank, and a $32.7 million loss for Other.
Key segment results and changes
- Electric utility: Revenue was $2.540 billion, up 12% from $2.265 billion; net income for common stock rose to $177.6 million from $169.3 million. Higher fuel and purchased-power costs drove much of the revenue increase and are generally passed through customers via recovery clauses. Operating income was $279.6 million. Electricity sales volume increased 1.7% from 2020 but remained 5.5% below 2019.
- Bank: Revenue was $306.4 million, down 2%; net income increased to $101.2 million from $57.6 million. The main earnings driver was a $25.8 million negative provision for credit losses, compared with a $50.8 million provision in 2020. Net interest income rose to $237.2 million, while net interest margin declined to 2.91% from 3.29%.
- ASB deposits increased 11% to $8.17 billion; loans held for investment, net, declined 2% to $5.14 billion. The investment securities portfolio increased 41% to $3.10 billion. The allowance for credit losses declined to $71.1 million from $101.2 million.
- Cash flow and investment: HEI used $1.180 billion in investing activities, primarily reflecting securities purchases and utility capital spending; financing activities provided $756.4 million, including deposit growth and debt issuance. Consolidated capital expenditures were $314.5 million, including $292.0 million at the Utilities.
Debt, liquidity and capital
- At year-end, HEI had $2.322 billion of long-term debt, net, and $54.0 million of commercial paper outstanding. Consolidated cash and cash equivalents were $305.6 million.
- The Utilities had $1.676 billion of long-term debt, net, $52.2 million of cash and no commercial paper outstanding. Their unused committed revolving credit capacity was $200 million; HEI’s unused capacity was $175 million.
- ASB had $251 million of cash and approximately $2.0 billion of unused Federal Home Loan Bank borrowing capacity. ASB’s regulatory capital ratios exceeded minimum requirements and it was categorized as well-capitalized.
- HEI’s consolidated capital structure, excluding bank deposits and other bank borrowings, was approximately 48% long-term debt, 50% common equity and 1% subsidiary preferred stock. HEI’s dividend payout ratio was 60%.
- Utilities’ forecast net capital expenditures are up to $2.1 billion for 2022–2026. HEI also disclosed $150 million of parent-company debt maturing in 2022; $75 million of a private placement was drawn in December 2021, and a further $50 million tranche could be drawn by November 2022.
Outlook, risks and unusual items
- Management expected Hawaii’s economy to improve in 2022 but emphasized uncertainty around COVID-19 and its effects. The filing provides no specific consolidated earnings or EPS guidance.
- The Utilities’ PBR framework became fully effective June 1, 2021. It includes a five-year rate period without general rate cases, indexed annual revenue adjustments, project recovery mechanisms and performance incentives. Regulatory outcomes affect the timing and recoverability of costs.
- The Utilities achieved a 38.4% renewable portfolio standard in 2021, above the 30% 2020 requirement. Their stated goals are to reduce power-generation carbon emissions 70% by 2030 from 2005 levels and reach net-zero power-generation emissions by 2045 or sooner. These goals depend in part on third-party projects, approvals, grid capability and timely equipment and supply.
- The AES Hawaii coal-fired plant, representing approximately 10% of Oahu generation, was scheduled to cease operations when its PPA expired on September 1, 2022. Management described replacement-resource and contingency plans, while warning that delays or generation issues could affect reliability.
- Renewable projects have faced delays, withdrawals or cancellation; supply-chain disruption, solar-product detentions and site conditions were cited. Failure to meet statutory RPS targets could result in a PUC penalty of $20 per MWh of deficiency, subject to the PUC’s discretion.
- COVID-related utility costs of $27.8 million were deferred as regulatory assets pending future recovery decisions. The Utilities reported $566 million in regulatory assets and $997 million in regulatory liabilities at year-end; continued regulatory accounting depends on expected cost recovery.
- Other significant exposures include Hawaii-focused utility and loan portfolios, interest-rate and credit risk at ASB, inflation and labor costs, natural disasters and climate impacts, cybersecurity, environmental remediation, and potential uninsured utility-system losses. The company disclosed a $2.7 million reserve for the former Molokai generation site and a $10.3 million reserve for the Pearl Harbor sediment investigation; the outcome of related matters may differ from estimates.
- HEI’s board approved an increase in the quarterly dividend from $0.34 to $0.35 per share beginning in first-quarter 2022. Management said it expected to maintain the dividend at that level, subject to quarterly board review.
- 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 also concluded its controls were effective.
Important facts for investors to verify
- Whether ASB’s 2021 earnings improvement—especially the negative credit-loss provision—persists as economic conditions and loan performance evolve.
- Progress, cost, approval status and commercial-operation timing for renewable and storage projects intended to replace AES capacity and meet RPS goals.
- PUC decisions on recovery of deferred COVID-19 costs, regulatory assets, project expenditures and performance incentives under the PBR framework.
- Utility customer receivables and collections: the filing reported $38 million past due more than 30 days and elevated receivables, with some customers on payment plans.
- Funding and execution of the $2.1 billion utility capital program, debt maturities, and the availability and cost of financing.
- Potential changes in ASB’s net interest margin, allowance for credit losses, and capital or regulatory requirements as assets approach $10 billion.