Income taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income taxes

Note 13 · Income taxes

The components of income taxes attributable to net income for common stock were as follows:

	HEI consolidated						Hawaiian Electric consolidated
Years ended December 31	2023		2022		2021		2023		2022		2021
(in thousands)
Federal
Current	$	30,909	$	77,595	$	51,455	$	40,365	$	75,118	$	42,794
Deferred	1,072		(37,410)		(11,689)		(3,444)		(39,646)		(12,109)
Deferred tax credits, net*	52		4,031		4,611		22		137		302
	32,033		44,216		44,377		36,943		35,609		30,987
State
Current	8,344		11,981		12,119		9,367		15,780		4,861
Deferred	4,196		4,914		6,290		4,883		(1,769)		8,279
Deferred tax credits, net*	—		56		21		—		56		21
	12,540		16,951		18,430		14,250		14,067		13,161
Total	$	44,573	$	61,167	$	62,807	$	51,193	$	49,676	$	44,148

*     In 2022 and 2021, primarily represents federal tax credits related to Mauo’s solar-plus-storage project, deferred and amortized starting in 2022 and 2021, respectively.

A reconciliation of the amount of income taxes computed at the federal statutory rate to the amount provided in the consolidated statements of income was as follows:

	HEI consolidated						Hawaiian Electric consolidated
Years ended December 31	2023		2022		2021		2023		2022		2021
(in thousands)
Amount at the federal statutory income tax rate	$	51,597	$	63,881	$	65,281	$	51,899	$	50,526	$	46,995
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit	10,827		14,438		15,735		11,097		11,026		10,323
Net deferred tax asset (liability) adjustment related to the Tax Act	(7,316)		(9,886)		(9,886)		(7,316)		(9,886)		(9,886)
Tax credits, net	(4,070)		(1,297)		(4,473)		(2,251)		(397)		(2,203)
Other, net	(6,465)		(5,969)		(3,850)		(2,236)		(1,593)		(1,081)
Total	$	44,573	$	61,167	$	62,807	$	51,193	$	49,676	$	44,148
Effective income tax rate (%)	18.1		20.1		20.2		20.7		20.6		19.7

The tax effects of book and tax basis differences that give rise to deferred tax assets and liabilities were as follows:

	HEI consolidated				Hawaiian Electric consolidated
December 31	2023		2022		2023		2022
(in thousands)
Deferred tax assets
Regulatory liabilities, excluding amounts attributable to property, plant and equipment	$	78,884	$	82,488	$	78,884	$	82,488
Lease liabilities	113,968		45,016		107,409		37,472
Retirement benefits	23,502		7,692		23,247		6,852
Revenue taxes	49,522		51,392		49,522		51,392
Allowance for bad debts	22,942		22,734		1,646		2,195
Available-for-sale investments	103,587		120,405		—		—
Other1	40,051		39,399		19,171		20,287
Total deferred tax assets	432,456		369,126		279,879		200,686
Deferred tax liabilities
Property, plant and equipment related	533,286		511,832		513,064		497,929
Lease right-of-use assets	113,498		44,461		107,409		37,472
Regulatory assets, excluding amounts attributable to property, plant and equipment	21,872		22,183		21,872		22,183
Retirement benefits	—		—		—		—
Other	61,754		53,112		36,535		27,532
Total deferred tax liabilities	730,410		631,588		678,880		585,116
Net deferred income tax liability	$	297,954	$	262,462	$	399,001	$	384,430

1     As of December 31, 2023, HEI consolidated has deferred tax assets of $6.0 million relating to the benefit of state tax credit carryforwards of $8.1 million. These state tax credit carryforwards primarily relate to the West Loch PV project and low income housing investments that do not expire. The Company concluded that as of December 31, 2023, a valuation allowance is not required.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. Based upon historical taxable income and projections for future taxable income, management believes it is more likely than not the Company and the Utilities will realize substantially all of the benefits of the deferred tax assets. As of December 31, 2023 and 2022, valuation allowances for deferred tax benefits were nil. The Utilities are included in the consolidated federal and Hawaii income tax returns of HEI and are subject to the provisions of HEI’s tax sharing agreement, which determines each subsidiary’s (or subgroup’s) income tax return liabilities and refunds on a standalone basis as if it filed a separate return (or subgroup consolidated return).

The following is a reconciliation of the Company’s liability for unrecognized tax benefits for 2023, 2022 and 2021.

	HEI consolidated						Hawaiian Electric consolidated
(in millions)	2023		2022		2021		2023		2022		2021
Unrecognized tax benefits, January 1	$	30.6	$	17.1	$	12.7	$	11.7	$	11.6	$	12.7
Additions based on tax positions taken during the year	0.5		19.0		2.8		0.3		0.1		0.3
Reductions based on tax positions taken during the year	—		(3.5)		(0.5)		—		—		—
Additions for tax positions of prior years	3.8		0.6		7.6		3.7		0.2		0.2
Reductions for tax positions of prior years	(7.2)		(2.6)		(5.5)		(0.1)		(0.2)		(1.6)
Lapses of statute of limitations	—		—		—		—		—		—
Settlement	—		—		—		—		—		—
Unrecognized tax benefits, December 31	$	27.7	$	30.6	$	17.1	$	15.6	$	11.7	$	11.6

The Internal Revenue Service began its examination of the Company’s U.S. income tax returns for 2017 and 2018 in the third quarter of 2020. The Company and the Utilities anticipate completing the examination by the end of 2024. At December 31, 2023, the Company and the Utilities believe that it is reasonably possible that there will be a decrease of up to $1.8 million in unrecognized tax benefits related to the reversal of temporary differences, due to the completion of the examination. In addition, the Company believes that it is reasonably possible that there will be a decrease of up to $1.3 million

related the reversal of temporary differences due to the lapsing of the statute of limitations. The Company’s and the Utilities’ estimate of the unrecognized tax benefits related to the tax credit claims under examination range from nil to $10 million. Of this amount, the Utilities expect that a portion of the recognized tax credit will be returned to ratepayers. At December 31, 2022, the amount was not material.

At December 31, 2023 and 2022, there were $13.8 million and $10.2 million of unrecognized tax benefits, respectively, that, if recognized, would affect the Company’s and Utilities’ annual effective tax rate.

Based on information currently available, the Company and the Utilities believe these accruals have adequately provided for potential income tax issues with federal and state tax authorities, and that the ultimate resolution of tax issues for all open tax periods will not have a material adverse effect on its results of operations, financial condition or liquidity.

The statute of limitations for IRS examinations has expired for years prior to 2017. The Company is currently under IRS examination for the tax years 2017 and 2018. In the fourth quarter of 2020, the Company and the Hawaii Department of Taxation agreed to a final assessment of tax liabilities for the years 2011 through 2018, however, the statute of limitations for Hawaii remains open for tax years 2017 and subsequent.

HEI consolidated. The Company recognizes interest accrued related to unrecognized tax benefits in “Interest expense-other than on deposit liabilities and other bank borrowings” and penalties, if any, in operating expenses. In 2023, 2022 and 2021, the Company recognized approximately $1.3 million, $0.4 million and $0.2 million, respectively, in interest expense. The Company had $1.9 million and $0.6 million of interest accrued as of December 31, 2023 and 2022, respectively.

Hawaiian Electric consolidated. The Utilities recognize interest accrued related to unrecognized tax benefits in “Interest expense and other charges, net” and penalties, if any, in operating expenses. In each of 2023, 2022 and 2021, the Utilities recognized approximately $0.1 million in interest expense. The Utilities had $0.4 million and $0.2 million of interest accrued as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, the disclosures above present the Company’s and the Utilities’ accruals for potential tax liabilities, which involve management’s judgment regarding the likelihood of the benefits being sustained under governmental review.

Tax developments. The Inflation Reduction Act of 2022 (IRA) was signed by President Biden on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax (CAMT) imposed on certain large corporations and a 1% excise tax on stock repurchases after December 31, 2022. Based on current interpretation of the law and current guidance available we do not believe HEI will be impacted by the CAMT or stock repurchase excise tax provisions.

The IRA also creates new tax credits and enhances others to stimulate investment in renewable energy sources. Certain provisions of the IRA became effective in tax year 2023. The Company is exploring clean energy tax incentives included in the IRA.