HAWAIIAN ELECTRIC INDUSTRIES INC quarterly report, Q1 FY2022

Hawaiian Electric Industries, Inc. (HEI) — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022; unaudited. HEI’s consolidated businesses include Hawaiian Electric’s regulated utilities, American Savings Bank (ASB), and other operations. Unless stated otherwise, figures below are in U.S. dollars and millions.

Financial results

Metric	Q1 2022	Q1 2021
Revenue	$785.1	$642.9
Operating income	$99.3	$98.0
Net income for common stock	$69.2	$64.4
Diluted EPS	$0.63	$0.59
Operating margin	12.6%	15.2%
Operating cash flow	$92.6	$41.7

Revenue increased 22%, primarily at the electric utility, while operating income was nearly flat. Higher fuel and purchased-power costs contributed to revenue growth and margin compression; much of these costs are passed through to customers under recovery clauses.
Electric utility revenue was $708.8 million and net income for common stock was $46.4 million, versus $564.9 million and $43.4 million, respectively, a year earlier. Utility kWh sales rose 2.5% year over year.
ASB revenue was $75.1 million, down from $77.1 million; net income fell to $23.9 million from $29.6 million. Net interest income increased to $59.0 million from $57.1 million, but net interest margin declined to 2.79% from 2.95%. ASB recorded a $3.3 million negative provision for credit losses.
Other-segment net loss improved to $1.1 million from $8.6 million, including an $8.1 million gain on sale of an equity-method investment in 2022.
HEI reported $117.2 million of other comprehensive loss, largely reflecting unrealized losses on available-for-sale securities. ASB’s after-tax unrealized securities loss in accumulated other comprehensive loss increased to $152.4 million from $32.0 million at year-end 2021; management attributed securities losses primarily to market conditions and said the portfolio remained investment grade.
HEI operating cash flow was $92.6 million; investing cash flow was negative $227.7 million, including security purchases and $79.2 million of capital expenditures; financing cash flow was positive $131.3 million. Cash and cash equivalents were $301.7 million at quarter-end.

Balance sheet, debt and liquidity

HEI total assets were $15.91 billion and total liabilities $13.57 billion at March 31, 2022. Consolidated long-term debt, excluding bank debt, was $2.32 billion; short-term borrowings excluding bank borrowings were $71.5 million. HEI’s reported capital structure, excluding bank deposits and other bank borrowings, was approximately 49% debt, 49% common equity and 1% subsidiary preferred stock.
Hawaiian Electric had $1.68 billion of long-term debt, $6 million of commercial paper and $29.1 million of cash and cash equivalents. Its $200 million revolving facility had no balance outstanding.
HEI and Hawaiian Electric had $175 million and $200 million of committed revolving capacity, respectively, with no facility draws. Quarter-end commercial paper was approximately $66 million at HEI and $6 million at Hawaiian Electric; total available committed capacity net of commercial paper was approximately $304 million.
ASB had $8.29 billion of deposits, $5.12 billion of net loans, $3.14 billion of investment securities and $270 million of cash and cash equivalents. It reported $2.1 billion of unused FHLB borrowing capacity and was “well capitalized,” with a 13.3% common equity Tier 1 ratio.
HEI paid a $0.35-per-share quarterly dividend, increased from $0.34, and said it currently expected to maintain the dividend at that level, subject to quarterly board review.

Changes, outlook and material risks

Management described Hawaii’s economy as improving, with domestic tourism recovering and utility electricity demand higher than in Q1 2021. International tourism remained substantially below pre-pandemic levels. No formal company earnings guidance was provided.
Fuel oil costs per barrel rose 62% year over year. The Utilities forecast average electric-bill increases of approximately 10% on Oahu and 20% on Hawaii and Maui, while warning that higher bills could affect customers’ ability to pay and invite regulatory action.
The Utilities plan to retire the state’s last coal-fired independent power plant on September 1, 2022. Management cited potential reliability challenges during the transition, including project delays, supply-chain constraints, inflation and unexpected generation outages. The company’s plan includes new renewable and storage resources, demand response and contingency measures.
HEI’s 2022–2026 utility capital expenditure forecast was up to $2.1 billion: approximately $1.3 billion for asset replacement and modernization, $0.5 billion for climate-related projects and resilience, and $0.3 billion for reliability. Timing and amounts may change with permitting, regulatory decisions and construction costs.
Renewable project execution remains a key risk: several projects have faced delays, and developers declared four Stage 2 projects null and void. The filing cites supply-chain disruption, solar-panel import issues, site conditions and higher costs. PUC approvals and cost recovery remain relevant to multiple projects.
The Utilities recorded $27.8 million of regulatory assets for COVID-related costs and intended to seek recovery in a separate proceeding. Approximately $38 million of utility receivables were 30 days past due; management said delayed collections had not materially affected liquidity.
Contingencies include environmental investigations and remediation, including recorded reserves of $2.7 million for a former Molokai generation site and $10.1 million for the Pearl Harbor sediment matter. The Utilities also face litigation over the Molokai site and other proceedings; management did not expect aggregate legal liabilities to be material to financial position but could not rule out effects on a future period’s results or liquidity.
Other cited risks include interest-rate and securities valuation changes at ASB, credit quality and deposit competition, regulatory decisions, fuel-price volatility, cybersecurity, weather and natural disasters, and the effects of COVID-19 or geopolitical developments. Management stated that available cash, operating cash flow, credit facilities and capital-market access should meet expected needs, while noting liquidity and working-capital uncertainties.

Key facts for investors to verify

Whether fuel-price recovery mechanisms keep pace with costs, and how forecast customer bill increases affect payment behavior and regulatory decisions.
Progress and timing of coal-plant replacement resources, renewable projects and storage; confirm actual project approvals, cancellations, costs and reliability performance.
ASB’s securities portfolio valuation and capital position as rates change, alongside loan quality, deposit trends and net interest margin.
Whether the Utilities obtain recovery of the $27.8 million COVID-related regulatory asset and other pending regulatory balances.
Updates on the Molokai and Pearl Harbor matters, remediation costs and other legal or environmental contingencies.
Actual capital spending, financing needs and dividend decisions relative to management’s stated plans.