Regulatory assets and liabilities - HECO (Hawaiian Electric Company and Subsidiaries)

12 Months Ended

Dec. 31, 2011

Hawaiian Electric Company and Subsidiaries

Regulatory assets and liabilities

6.  Regulatory assets and liabilities

In accordance with ASC Topic 980, “Regulated Operations,” the Company’s financial statements reflect assets, liabilities, revenues and expenses based on current cost-based rate-making regulations. Continued accounting under ASC Topic 980 generally requires that rates are established by an independent, third-party regulator; rates are designed to recover the costs of providing service; and it is reasonable to assume that rates can be charged to and collected from customers. Management believes its operations currently satisfy the ASC Topic 980 criteria. If events or circumstances should change so that those criteria are no longer satisfied, the Company expects that the regulatory assets would be charged to expense and the regulatory liabilities would be credited to income or refunded to ratepayers immediately. In the event of unforeseen regulatory actions or other circumstances, management believes that a material adverse effect on the Company’s financial condition, results of operations and/or liquidity may result if regulatory assets have to be charged to expense or if regulatory liabilities are required to be refunded to ratepayers immediately.

Regulatory assets represent deferred costs expected to be fully recovered through rates over PUC-authorized periods. Generally, HECO and its subsidiaries do not earn a return on their regulatory assets; however, they have been allowed to recover interest on certain regulatory assets and to include certain regulatory assets in rate base.

Regulatory liabilities represent amounts included in rates and collected from ratepayers for costs expected to be incurred in the future. For example, the regulatory liability for cost of removal in excess of salvage value represents amounts that have been collected from ratepayers for costs that are expected to be incurred in the future to retire utility plant. Generally, HECO and its subsidiaries include regulatory liabilities in rate base or are required to apply interest to certain regulatory liabilities. Noted in parentheses are the original PUC authorized amortization or recovery periods and the remaining amortization or recovery periods as of December 31, 2011, if different.

Regulatory assets were as follows:

December 31	2011	2010
(in thousands)
Retirement benefit plans (balance primarily varies with plans’ funded statuses)	$523,640	$356,591
Income taxes, net (1 to 48 years)	83,386	82,615
Decoupling revenue balancing account (1 year)	20,780	–
Unamortized expense and premiums on retired debt and equity issuances (14 to 30 years; 1 to 17 years remaining)	12,267	13,589
Vacation earned, but not yet taken (1 year)	8,161	7,349
Postretirement benefits other than pensions (18 years; 1 year remaining)	1,861	3,579
Other (1 to 50 years; 1 to 48 years remaining)	19,294	14,607
	$669,389	$478,330

Regulatory liabilities were as follows:

December 31	2011	2010
(in thousands)
Cost of removal in excess of salvage value (1 to 60 years)	$294,817	$277,341
Retirement benefit plans (5 years beginning with respective utility’s	20,000	18,617
next rate case; primarily 5 years remaining)
Other (5 years; 1 to 5 years remaining)	649	839
	$315,466	$296,797

The regulatory asset and liability relating to retirement benefit plans was created as a result of pension and OPEB tracking mechanisms adopted by the PUC in rate case decisions for HECO, MECO and HELCO in 2007 (see Note 10).