Segment financial information

12 Months Ended

Dec. 31, 2019

Note 2 · Segment financial information

The electric utility and bank segments are strategic business units of the Company that offer different products and services and operate in different regulatory environments. The accounting policies of the segments are the same as those described for the Company in the summary of significant accounting policies, except as otherwise indicated and except that federal and state income taxes for each segment are calculated on a “stand-alone” basis. HEI evaluates segment performance based on net income. Each segment accounts for intersegment sales and transfers as if the sales and transfers were to third parties (i.e., at current market prices). Intersegment revenues consist primarily of Hamakua Energy revenues, interest, rent and preferred stock dividends.

Electric utility

Hawaiian Electric and its wholly owned operating subsidiaries, Hawaii Electric Light and Maui Electric, are public electric utilities in the business of generating, purchasing, transmitting, distributing and selling electric energy on all major islands in Hawaii other than Kauai, and are regulated by the PUC. The utility subsidiaries are aggregated within the electric utility segment because they: (1) are involved in the business of supplying electric energy in the same geographical location (i.e., the State of Hawaii), (2) have similar production processes that comprise electric generation, (3) serve similar customers within their franchise territories (e.g., residential, commercial and industrial customers), (4) use similar electric grids to distribute the energy to their customers, (5) are regulated by the PUC and undergo similar rate-making processes, (6) have similar economic characteristics and (7) perform financial reporting oversight and management of the business at the consolidated level.

Bank

ASB is a federally chartered savings bank that provides a full range of banking services to individual and business customers through its branch system in Hawaii. ASB is subject to examination and comprehensive regulation by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), and is subject to reserve requirements established by the Board of Governors of the Federal Reserve System.

Other

“Other” includes amounts for the holding companies (HEI and ASB Hawaii, Inc.), Pacific Current, and other subsidiaries not qualifying as reportable segments, and intercompany eliminations.

Pacific Current. Pacific Current was formed in September 2017 to focus on investing in non-regulated renewable energy and sustainable infrastructure in the State of Hawaii to help achieve the state’s sustainability goals. Significant investments of Pacific Current made through its subsidiaries, Hamakua Energy, LLC and Mauo, LLC, include:

Hamakua power plant. On November 24, 2017, Hamakua Energy, LLC acquired Hamakua Energy Partners, L.P.’s 60-MW combined cycle power plant and other assets from affiliates of ArcLight Capital Partners, a private equity firm. The plant sells all the power it produces to Hawaii Electric Light under an existing power purchase agreement (PPA) that expires in 2030.

Solar + Storage Power Purchase Agreement (PPA). On February 2, 2018, Mauo, LLC executed definitive agreements to acquire a solar-plus-storage PPA for a multi-site, commercial-scale project that will provide 8.6 MW of solar capacity and 42.3 MWH of storage capacity on the islands of Maui and Oahu. The PPA has a 15-year term with an option to extend for an additional five years. The system is currently being constructed by a third party contractor under an Engineering, Procurement and Construction (EPC) contract that was contemporaneously negotiated and executed by Mauo, LLC. The EPC contract provides a fixed price for the purchase of the completed system, a project completion schedule and performance obligations designed to match the requirements of the PPA. Mauo, LLC is funding the construction of the project with a construction facility that will be repaid at the commercial operation date (ultimately with cash from investment tax credits, state renewable tax credits, non-recourse project debt, and equity). There are five separate project sites, which are expected to be placed into service during 2020.

Segment financial information was as follows:



(in thousands)	Electric utility		Bank		Other			Total
2019
Revenues from external customers	$	2,545,865	$	328,570	$	166		$	2,874,601
Intersegment revenues (eliminations)	77		—		(77		)	—
Revenues	2,545,942		328,570		89			2,874,601
Depreciation and amortization	245,362		28,675		4,076			278,113
Interest expense, net	70,842		18,440		20,057			109,339
Income (loss) before income taxes	197,140		112,034		(37,765		)	271,409
Income taxes (benefit)	38,305		23,061		(9,729		)	51,637
Net income (loss)	158,835		88,973		(28,036		)	219,772
Preferred stock dividends of subsidiaries	1,995		—		(105		)	1,890
Net income (loss) for common stock	156,840		88,973		(27,931		)	217,882
Capital expenditures	419,898		24,175		13,447			457,520
Assets (at December 31, 2019)	6,388,682		7,233,017		123,552			13,745,251
2018
Revenues from external customers	$	2,546,472	$	314,275	$	102		$	2,860,849
Intersegment revenues (eliminations)	53		—		(53		)	—
Revenues	2,546,525		314,275		49			2,860,849
Depreciation and amortization	230,228		21,443		3,958			255,629
Interest expense, net	73,348		15,539		15,329			104,216
Income (loss) before income taxes	180,426		106,578		(32,543		)	254,461
Income taxes (benefit)	34,778		24,069		(8,050		)	50,797
Net income (loss)	145,648		82,509		(24,493		)	203,664
Preferred stock dividends of subsidiaries	1,995		—		(105		)	1,890
Net income (loss) for common stock	143,653		82,509		(24,388		)	201,774
Capital expenditures¹	415,264		72,666		18,840			537,369
Assets (at December 31, 2018)	5,967,503		7,027,894		108,654			13,104,051

2017
Revenues from external customers	$	2,257,455	$	297,640	$	530		$	2,555,625
Intersegment revenues (eliminations)	111		—		(111		)	—
Revenues	2,257,566		297,640		419			2,555,625
Depreciation and amortization	201,282		19,416		1,300			221,998
Interest expense, net	69,637		12,156		9,335			91,128
Income (loss) before income taxes	205,145		98,716		(27,281		)	276,580
Income taxes (benefit)	83,199		31,719		(5,525		)	109,393
Net income (loss)	121,946		66,997		(21,756		)	167,187
Preferred stock dividends of subsidiaries	1,995		—		(105		)	1,890
Net income (loss) for common stock	119,951		66,997		(21,651		)	165,297
Capital expenditures¹	376,865		53,272		317			495,187
Assets (at December 31, 2017)	5,630,613		6,798,659		104,888			12,534,160


¹	Contributions in aid of construction balances are included in capital expenditures.

Intercompany electricity sales of the Utilities to ASB and “other” segments are not eliminated because those segments would need to purchase electricity from another source if it were not provided by the Utilities and the profit on such sales is nominal.

Bank fees that ASB charges the Utilities and “other” segments are not eliminated because those segments would pay fees to another financial institution if they were to bank with another institution and the profit on such fees is nominal.

Hamakua Energy’s sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.