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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2000, for Hawaiian Electric Industries, Inc. (HEI) and its principal subsidiary, Hawaiian Electric Company, Inc. (HECO). HEI operates as a holding company with three primary business segments: Electric Utility (HECO and subsidiaries), Savings Bank (American Savings Bank, F.S.B.), and International Power (HEI Power Corp.). The filing includes unaudited consolidated financial statements and management's discussion and analysis.

Key Financial Metrics

Segment Performance:

• Electric Utility: Revenues of $289.4 million (up 22%); Net income of $23.7 million (up 39%). Driven by higher fuel costs passed to customers and increased kilowatthour sales.
• Savings Bank: Revenues of $110.3 million (up 10%); Net income of $11.2 million (up 32%). Driven by higher net interest income.
• International Power: Revenues of $1.7 million; Operating loss of $0.5 million.
• Other: Revenues of $0.5 million; Operating loss of $2.2 million. Significant decline due to the sale of maritime operations in late 1999.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 14% year-over-year, primarily due to the Electric Utility and Savings Bank segments.
• Profitability: Net income increased 40% to $29.0 million. This was driven by higher operating income, partially offset by increased interest expense related to the HEIPC acquisition in March 2000.
• Accounting Changes: A change in the method for calculating the market-related value of retirement benefit plan assets and an increase in the discount rate for pension calculations increased net income by approximately $2 million combined.
• Discontinued Operations: The "Other" segment revenues dropped 96% because the maritime freight and harbor assist operations (HTB/YB) were sold in November 1999.

Outlook, Risks, and Contingencies

Guidance and Capital Needs: HEI estimates consolidated financing requirements of $1.2 billion for 2000–2004, with approximately $0.8 billion for net capital expenditures. Internal sources are expected to fund 66% of these requirements.

Key Risks and Contingencies:

• HELCO Keahole Project Delays: Construction of the CT-4 and CT-5 units at the Keahole power plant is delayed due to permitting issues (PSD permit) and litigation regarding land use (CDUP). Management estimates service in early 2002. Costs incurred to date total approximately $80.4 million; a write-off may be required if the project is abandoned.
• China Project (Baotou): The Inner Mongolia Power Company has refused an interconnection arrangement for the Baotou Tianjiao Power Co. joint venture. HEI considers the off-taker (Baotou Steel) in default and is evaluating withdrawal and recovery of its ~$25 million investment.
• Philippines Acquisition: HEI acquired a 50% interest in El Paso Philippines Holding Company (EPHC) for $87 million in March 2000. This exposes the company to foreign currency risk (Philippine peso) and fuel price volatility.
• Regulatory Environment: Ongoing PUC proceedings regarding rate increases for HELCO and MECO. The PUC is also examining electric competition and performance-based rate-making.

Investor Verification Checklist

• Keahole Project Viability: Verify the status of the PSD permit and the outcome of the BLNR litigation to assess the risk of writing off the $80.4 million in incurred costs.
• China Project Recovery: Monitor the legal proceedings regarding the Baotou Tianjiao Power Co. default to determine the recoverability of the $25 million investment.
• Philippines Exposure: Review the hedging strategies implemented to mitigate the currency and fuel price risks associated with the new EPHC investment.
• Rate Case Outcomes: Track the PUC decisions on the pending rate increase requests for HELCO and MECO to confirm revenue recovery assumptions.
• Banking Liquidity: Confirm ASB's continued compliance with OTS capital requirements and liquidity ratios amidst changing market conditions.