Edgar Filing: HAWAIIAN ELECTRIC INDUSTRIES INC

HE-6.30.2014-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Exact Name of Registrant as	Commission	I.R.S. Employer
Specified in Its Charter	File Number	Identification No.
HAWAIIAN ELECTRIC INDUSTRIES, INC.	1-8503	99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC.	1-4955	99-0040500

State of Hawaii

(State or other jurisdiction of incorporation or organization)

Hawaiian Electric Industries, Inc. – 1001 Bishop Street, Suite 2900, Honolulu, Hawaii 96813

Hawaiian Electric Company, Inc. – 900 Richards Street, Honolulu, Hawaii 96813

(Address of principal executive offices and zip code)

Hawaiian Electric Industries, Inc. – (808) 543-5662

Hawaiian Electric Company, Inc. – (808) 543-7771

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Hawaiian Electric Industries, Inc. Yes x No o		Hawaiian Electric Company, Inc. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Hawaiian Electric Industries, Inc. Yes x No o		Hawaiian Electric Company, Inc. Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Hawaiian Electric Industries, Inc. Yes o No x		Hawaiian Electric Company, Inc. Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Hawaiian Electric Industries, Inc.	Large accelerated filer x	Hawaiian Electric Company, Inc.	Large accelerated filer o
	Accelerated filer o		Accelerated filer o
	Non-accelerated filer o		Non-accelerated filer x
	(Do not check if a smaller reporting company)		(Do not check if a smaller reporting company)
	Smaller reporting company o		Smaller reporting company o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.



Class of Common Stock		Outstanding July 31, 2014
Hawaiian Electric Industries, Inc. (Without Par Value)		102,560,176 Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value)		15,429,105 Shares (not publicly traded)

Hawaiian Electric Industries, Inc. (HEI) is the sole holder of Hawaiian Electric Company, Inc. (Hawaiian Electric) common stock.

This combined Form 10-Q is separately filed by HEI and Hawaiian Electric. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to the other registrant, except that information relating to Hawaiian Electric is also attributed to HEI.

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended June 30, 2014

TABLE OF CONTENTS



Page No.
ii	Glossary of Terms
iv	Forward-Looking Statements

	PART I. FINANCIAL INFORMATION
1	Item 1.	Financial Statements

		Hawaiian Electric Industries, Inc. and Subsidiaries
1		Consolidated Statements of Income - three and six months ended June 30, 2014 and 2013
2		Consolidated Statements of Comprehensive Income - three and six months ended June 30, 2014 and 2013
3		Consolidated Balance Sheets - June 30, 2014 and December 31, 2013
4		Consolidated Statements of Changes in Shareholders’ Equity - six months ended June 30, 2014 and 2013
5		Consolidated Statements of Cash Flows - six months ended June 30, 2014 and 2013
		Hawaiian Electric Company, Inc. and Subsidiaries
6		Consolidated Statements of Income - three and six months ended June 30, 2014 and 2013
6		Consolidated Statements of Comprehensive Income - three and six months ended June 30, 2014 and 2013
7		Consolidated Balance Sheets - June 30, 2014 and December 31, 2013
8		Consolidated Statements of Changes in Common Stock Equity - six months ended June 30, 2014 and 2013
9		Consolidated Statements of Cash Flows - six months ended June 30, 2014 and 2013
10		Notes to Consolidated Financial Statements
56	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
56		HEI consolidated
61		Electric Utilities
71		Bank
79	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
80	Item 4.	Controls and Procedures

	PART II.	OTHER INFORMATION
81	Item 1.	Legal Proceedings
81	Item 1A.	Risk Factors
81	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds
81	Item 5.	Other Information
82	Item 6.	Exhibits
83	Signatures

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended June 30, 2014

GLOSSARY OF TERMS



Terms		Definitions
AFUDC		Allowance for funds used during construction
AOCI		Accumulated other comprehensive income/(loss)
ARO		Asset retirement obligation
ASB		American Savings Bank, F.S.B., a wholly-owned subsidiary of American Savings Holdings, Inc.
ASHI		American Savings Holdings, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.
ASU		Accounting Standards Update
CIP CT-1		Campbell Industrial Park 110 MW combustion turbine No. 1
CIS		Customer Information System
Company		Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under Hawaiian Electric); American Savings Holdings, Inc. and its subsidiary, American Savings Bank, F.S.B.; HEI Properties, Inc.; Hawaiian Electric Industries Capital Trust II and Hawaiian Electric Industries Capital Trust III (inactive financing entities); and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.).
Consumer Advocate		Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
DBEDT		State of Hawaii Department of Business, Economic Development and Tourism
D&O		Decision and order
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act
DOH		Department of Health of the State of Hawaii
DRIP		HEI Dividend Reinvestment and Stock Purchase Plan
DSM		Demand-side management
ECAC		Energy cost adjustment clauses
EIP		2010 Equity and Incentive Plan
EGU		Electrical generating unit
Energy Agreement		Agreement dated October 20, 2008 and signed by the Governor of the State of Hawaii, the State of Hawaii Department of Business, Economic Development and Tourism, the Division of Consumer Advocacy of the Department of Commerce and Consumer Affairs, and Hawaiian Electric, for itself and on behalf of its electric utility subsidiaries committing to actions to develop renewable energy and reduce dependence on fossil fuels in support of the HCEI
EPA		Environmental Protection Agency — federal
EPS		Earnings per share
ERISA		Employee Retirement Income Security Act of 1974, as amended
EVE		Economic value of equity
Exchange Act		Securities Exchange Act of 1934
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
federal		U.S. Government
FHLB		Federal Home Loan Bank
FHLMC		Federal Home Loan Mortgage Corporation
FNMA		Federal National Mortgage Association
FRB		Federal Reserve Board

GLOSSARY OF TERMS, continued



Terms		Definitions
GAAP		Accounting principles generally accepted in the United States of America
GHG		Greenhouse gas
GNMA		Government National Mortgage Association
HCEI		Hawaii Clean Energy Initiative
Hawaiian Electric		Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited, HECO Capital Trust III (unconsolidated financing subsidiary), Renewable Hawaii, Inc. and Uluwehiokama Biofuels Corp.
Hawaii Electric Light		Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.
HEI		Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., American Savings Holdings, Inc., HEI Properties, Inc., Hawaiian Electric Industries Capital Trust II, Hawaiian Electric Industries Capital Trust III and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
HEIRSP		Hawaiian Electric Industries Retirement Savings Plan
HELOC		Home equity line of credit
HPOWER		City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
IPP		Independent power producer
IRP		Integrated resource planning
Kalaeloa		Kalaeloa Partners, L.P.
KW		Kilowatt
KWH		Kilowatthour
LTIP		Long-term incentive plan
LGD		Loss given default
Maui Electric		Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
MW		Megawatt/s (as applicable)
NII		Net interest income
O&M		Other operation and maintenance
OCC		Office of the Comptroller of the Currency
OPEB		Postretirement benefits other than pensions
PPA		Power purchase agreement
PPAC		Purchased power adjustment clause
PUC		Public Utilities Commission of the State of Hawaii
RAM		Revenue adjustment mechanism
RBA		Revenue balancing account
RFP		Request for proposals
REIP		Renewable Energy Infrastructure Program
ROACE		Return on average common equity
RORB		Return on average rate base
RPS		Renewable portfolio standard
SAR		Stock appreciation right
SEC		Securities and Exchange Commission
See		Means the referenced material is incorporated by reference
TDR		Troubled debt restructuring
Trust III		HECO Capital Trust III
Utilities		Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited
VIE		Variable interest entity

iii

FORWARD-LOOKING STATEMENTS

This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), the performance of the industries in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance.

Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following:

•

international, national and local economic conditions, including the state of the Hawaii tourism, defense and construction industries, the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by American Savings Bank, F.S.B. (ASB), which could result in higher loan loss provisions and write-offs), decisions concerning the extent of the presence of the federal government and military in Hawaii, the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions, and the potential impacts of global developments (including global economic conditions and uncertainties, unrest, ongoing conflicts in North Africa and the Middle East, terrorist acts, potential conflict or crisis with North Korea or Iran, and developments in the Ukraine);


•	the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling and monetary policy;


•	weather and natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes and the potential effects of climate change, such as more severe storms and rising sea levels), including their impact on the Company's and Utilities' operations and the economy;


•	the timing and extent of changes in interest rates and the shape of the yield curve;


•	the ability of the Company and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and long-term debt financing, including lines of credit, and, in the case of HEI, to issue common stock) under volatile and challenging market conditions, and the cost of such financings, if available;


•	the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale;


•	changes in laws, regulations, market conditions and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements;


•	the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that the Dodd-Frank Act requires to be promulgated;


•	increasing competition in the banking industry (e.g., increased price competition for deposits, or an outflow of deposits to alternative investments, which may have an adverse impact on ASB’s cost of funds);

•

the implementation of the Energy Agreement with the State of Hawaii and Consumer Advocate (Energy Agreement), setting forth the goals and objectives of a Hawaii Clean Energy Initiative (HCEI), and the fulfillment by the Utilities of their commitments under the Energy Agreement (given the Public Utilities Commission of the State of Hawaii (PUC) approvals needed; the PUC’s potential delay in considering (and potential disapproval of actual or proposed) HCEI-related costs; reliance by the Utilities on outside parties such as the state, independent power producers (IPPs) and developers; potential changes in political support for the HCEI; and uncertainties surrounding wind power, proposed undersea cables, biofuels, environmental assessments and the impacts of implementation of the HCEI on future costs of electricity);

•

the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans and business model changes that are being developed in response to the four orders that the PUC issued in April 2014, in which the PUC: directed the Utilities to develop, among other things, Power Supply Improvement Plans, a Demand Response Portfolio Plan and a Distributed Generation Interconnection Plan; described the PUC’s inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals; and emphasized the need to “leap ahead” of other states in creating a 21st century generation system and modern transmission and distribution grids;


•	capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management (DSM), distributed generation, combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand;


•	fuel oil price changes, delivery of adequate fuel by suppliers and the continued availability to the electric utilities of their energy cost adjustment clauses (ECACs);


•	the continued availability to the electric utilities of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), revenue adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales;


•	the impact of fuel price volatility on customer satisfaction and political and regulatory support for the Utilities;


•	the risks associated with increasing reliance on renewable energy, as contemplated under the Energy Agreement, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;


•	the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities' electric systems and as customers reduce their energy usage;


•	the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);


•	the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements;


•	new technological developments that could affect the operations and prospects of HEI, ASB and the Utilities or their competitors;


•	cyber security risks and the potential for cyber incidents, including potential incidents at HEI, ASB and the Utilities (including at ASB branches and electric utility plants) and incidents at data processing centers they use, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general information technology controls;

•

federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas (GHG) emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);


•	developments in laws, regulations, and policies governing protections for historic, archaeological, and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations, and policies;


•	discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation, or regulatory oversight;


•	decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);


•	decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or renewable portfolio standards (RPS));

•

potential enforcement actions by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy);


•	the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by revenue adjustment mechanisms;


•	the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);


•	changes in accounting principles applicable to HEI, the Utilities and ASB, including the adoption of new U.S. accounting standards, the potential discontinuance of regulatory accounting and the effects of potentially required consolidation of variable interest entities (VIEs) or required capital lease accounting for PPAs with IPPs;


•	changes by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and the results of financing efforts;


•	faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB;


•	changes in ASB’s loan portfolio credit profile and asset quality which may increase or decrease the required level of provision for loan losses, allowance for loan losses and charge-offs;


•	changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds;


•	the final outcome of tax positions taken by HEI, the Utilities and ASB;


•	the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits); and


•	other risks or uncertainties described elsewhere in this report and in other reports (e.g., “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K) previously and subsequently filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission (SEC).

Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, ASB and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Income (unaudited)



	Three months ended June 30						Six months ended June 30
(in thousands, except per share amounts)	2014			2013			2014			2013
Revenues
Electric utility	$	738,429		$	728,525		$	1,458,491		$	1,445,966
Bank	60,616			66,027			124,235			130,783
Other	(388		)	15			(320		)	50
Total revenues	798,657			794,567			1,582,406			1,576,799
Expenses
Electric utility	668,361			669,550			1,317,757			1,335,870
Bank	43,568			41,322			85,564			84,327
Other	4,453			3,488			8,504			7,570
Total expenses	716,382			714,360			1,411,825			1,427,767
Operating income (loss)
Electric utility	70,068			58,975			140,734			110,096
Bank	17,048			24,705			38,671			46,456
Other	(4,841		)	(3,473		)	(8,824		)	(7,520		)
Total operating income	82,275			80,207			170,581			149,032
Interest expense, net—other than on deposit liabilities and other bank borrowings	(20,022		)	(18,442		)	(39,478		)	(37,173		)
Allowance for borrowed funds used during construction	523			398			1,137			1,128
Allowance for equity funds used during construction	1,387			1,560			2,996			2,775
Income before income taxes	64,163			63,723			135,236			115,762
Income taxes	22,269			22,662			46,942			40,549
Net income	41,894			41,061			88,294			75,213
Preferred stock dividends of subsidiaries	473			473			946			946
Net income for common stock	$	41,421		$	40,588		$	87,348		$	74,267
Basic earnings per common share	$	0.41		$	0.41		$	0.86		$	0.75
Diluted earnings per common share	$	0.41		$	0.41		$	0.86		$	0.75
Dividends per common share	$	0.31		$	0.31		$	0.62		$	0.62
Weighted-average number of common shares outstanding	101,495			98,660			101,439			98,399
Net effect of potentially dilutive shares	330			589			606			562
Adjusted weighted-average shares	101,825			99,249			102,045			98,961

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)



	Three months ended June 30						Six months ended June 30
(in thousands)	2014			2013			2014			2013
Net income for common stock	$	41,421		$	40,588		$	87,348		$	74,267
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the period, net of (taxes) benefits of ($1,679), $5,485, ($3,343) and $6,032 for the respective periods	2,543			(8,307		)	5,063			(9,135		)
Less: reclassification adjustment for net realized gains included in net income, net of taxes of nil, $488, $1,132 and $488 for the respective periods	—			(738		)	(1,715		)	(738		)
Derivatives qualified as cash flow hedges:
Less: reclassification adjustment to net income, net of tax benefits of $38, $38, $75 and $75 for the respective periods	59			59			118			118
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $1,742, $3,630, $3,632 and $7,476 for the respective periods	2,873			5,680			5,686			11,701
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $1,641, $3,184, $3,239 and $6,568 for the respective periods	(2,575		)	(4,999		)	(5,085		)	(10,312		)
Other comprehensive income (loss), net of taxes	2,900			(8,305		)	4,067			(8,366		)
Comprehensive income attributable to Hawaiian Electric Industries, Inc.	$	44,321		$	32,283		$	91,415		$	65,901

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Balance Sheets (unaudited)



(dollars in thousands)	June 30, 2014			December 31, 2013
Assets
Cash and cash equivalents	$	188,377		$	220,036
Accounts receivable and unbilled revenues, net	349,771			346,785
Available-for-sale investment and mortgage-related securities	549,321			529,007
Investment in stock of Federal Home Loan Bank of Seattle	80,863			92,546
Loans receivable held for investment, net	4,245,240			4,110,113
Loans held for sale, at lower of cost or fair value	956			5,302
Property, plant and equipment, net of accumulated depreciation of $2,224,728 and $2,192,422 at the respective dates	3,980,096			3,865,514
Regulatory assets	582,645			575,924
Other	557,684			512,627
Goodwill	82,190			82,190
Total assets	$	10,617,143		$	10,340,044
Liabilities and shareholders’ equity
Liabilities
Accounts payable	$	176,379		$	212,331
Interest and dividends payable	25,315			26,716
Deposit liabilities	4,524,860			4,372,477
Short-term borrowings—other than bank	185,175			105,482
Other bank borrowings	242,455			244,514
Long-term debt, net—other than bank	1,517,945			1,492,945
Deferred income taxes	579,222			529,260
Regulatory liabilities	354,980			349,299
Contributions in aid of construction	442,379			432,894
Defined benefit pension and other postretirement benefit plans liability	278,427			288,539
Other	494,834			524,224
Total liabilities	8,821,971			8,578,681
Preferred stock of subsidiaries - not subject to mandatory redemption	34,293			34,293
Commitments and contingencies (Notes 3 and 4)
Shareholders’ equity
Preferred stock, no par value, authorized 10,000,000 shares; issued: none	—			—
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 101,560,176 shares and 101,259,800 shares at the respective dates	1,493,436			1,488,126
Retained earnings	280,126			255,694
Accumulated other comprehensive loss, net of tax benefits	(12,683		)	(16,750		)
Total shareholders’ equity	1,760,879			1,727,070
Total liabilities and shareholders’ equity	$	10,617,143		$	10,340,044

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)



	Common stock			Retained			Accumulated other comprehensive
(in thousands, except per share amounts)	Shares	Amount		Earnings			income (loss)			Total
Balance, December 31, 2013	101,260	$	1,488,126	$	255,694		$	(16,750	)	$	1,727,070
Net income for common stock	—	—		87,348			—			87,348
Other comprehensive income, net of taxes	—	—		—			4,067			4,067
Issuance of common stock, net	300	5,310		—			—			5,310
Common stock dividends ($0.62 per share)	—	—		(62,916		)	—			(62,916		)
Balance, June 30, 2014	101,560	$	1,493,436	$	280,126		$	(12,683	)	$	1,760,879

Balance, December 31, 2012	97,928	$	1,403,484	$	216,804		$	(26,423	)	$	1,593,865
Net income for common stock	—	—		74,267			—			74,267
Other comprehensive loss, net of tax benefits	—	—		—			(8,366		)	(8,366		)
Issuance of common stock, net	1,116	25,887		—			—			25,887
Common stock dividends ($0.62 per share)	—	—		(61,004		)	—			(61,004		)
Balance, June 30, 2013	99,044	$	1,429,371	$	230,067		$	(34,789	)	$	1,624,649

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)



Six months ended June 30	2014			2013
(in thousands)
Cash flows from operating activities
Net income	$	88,294		$	75,213
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	86,397			79,843
Other amortization	4,014			2,868
Provision for loan losses	2,016			899
Loans receivable originated and purchased, held for sale	(69,656		)	(128,276		)
Proceeds from sale of loans receivable, held for sale	75,040			148,243
Increase in deferred income taxes	28,252			40,403
Excess tax benefits from share-based payment arrangements	(267		)	(445		)
Allowance for equity funds used during construction	(2,996		)	(2,775		)
Change in cash overdraft	(1,038		)	—
Changes in assets and liabilities
Decrease (increase) in accounts receivable and unbilled revenues, net	(2,986		)	3,564
Decrease (increase) in fuel oil stock	(27,206		)	43,974
Increase in regulatory assets	(17,731		)	(37,586		)
Decrease in accounts, interest and dividends payable	(64,843		)	(43,384		)
Change in prepaid and accrued income taxes and utility revenue taxes	(32,510		)	(33,822		)
Decrease in defined benefit pension and other postretirement benefit plans liability	(1,714		)	(330		)
Change in other assets and liabilities	(16,871		)	(17,597		)
Net cash provided by operating activities	46,195			130,792
Cash flows from investing activities
Available-for-sale investment and mortgage-related securities purchased	(125,531		)	(39,721		)
Principal repayments on available-for-sale investment and mortgage-related securities	33,202			62,819
Proceeds from sale of available-for-sale investment securities	79,564			71,367
Redemption of stock from Federal Home Loan Bank of Seattle	11,683			1,742
Net increase in loans held for investment	(137,122		)	(201,184		)
Proceeds from sale of real estate acquired in settlement of loans	2,162			5,712
Capital expenditures	(149,253		)	(158,830		)
Contributions in aid of construction	13,209			17,188
Other	(16		)	622
Net cash used in investing activities	(272,102		)	(240,285		)
Cash flows from financing activities
Net increase in deposit liabilities	152,383			46,326
Net increase in short-term borrowings with original maturities of three months or less	79,693			42,093
Net decrease in retail repurchase agreements	(2,053		)	(8,054		)
Proceeds from other bank borrowings	—			25,000
Repayments of other bank borrowings	—			(25,000		)
Proceeds from issuance of long-term debt	125,000			50,000
Repayment of long-term debt	(100,000		)	(50,000		)
Excess tax benefits from share-based payment arrangements	267			445
Net proceeds from issuance of common stock	3,048			11,994
Common stock dividends	(62,892		)	(48,921		)
Preferred stock dividends of subsidiaries	(946		)	(946		)
Other	(252		)	606
Net cash provided by financing activities	194,248			43,543
Net decrease in cash and cash equivalents	(31,659		)	(65,950		)
Cash and cash equivalents, beginning of period	220,036			219,662
Cash and cash equivalents, end of period	$	188,377		$	153,712

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Statements of Income (unaudited)



	Three months ended June 30						Six months ended June 30
(in thousands)	2014			2013			2014			2013
Revenues	$	738,429		$	728,525		$	1,458,491		$	1,445,966
Expenses
Fuel oil	270,257			289,278			556,557			594,378
Purchased power	188,323			178,444			353,239			331,808
Other operation and maintenance	98,564			94,397			187,170			196,210
Depreciation	41,593			38,590			83,196			76,870
Taxes, other than income taxes	69,624			68,841			137,595			136,604
Total expenses	668,361			669,550			1,317,757			1,335,870
Operating income	70,068			58,975			140,734			110,096
Allowance for equity funds used during construction	1,387			1,560			2,996			2,775
Interest expense and other charges, net	(16,852		)	(14,408		)	(32,575		)	(28,927		)
Allowance for borrowed funds used during construction	523			398			1,137			1,128
Income before income taxes	55,126			46,525			112,292			85,072
Income taxes	20,397			17,333			41,644			30,952
Net income	34,729			29,192			70,648			54,120
Preferred stock dividends of subsidiaries	229			229			458			458
Net income attributable to Hawaiian Electric	34,500			28,963			70,190			53,662
Preferred stock dividends of Hawaiian Electric	270			270			540			540
Net income for common stock	$	34,230		$	28,693		$	69,650		$	53,122

HEI owns all of the common stock of Hawaiian Electric. Therefore, per share data with respect to shares of common stock of Hawaiian Electric are not meaningful.

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)



	Three months ended June 30						Six months ended June 30
(in thousands)	2014			2013			2014			2013
Net income for common stock	$	34,230		$	28,693		$	69,650		$	53,122
Other comprehensive income, net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $1,647, $3,195, $3,252 and $6,590 for the respective periods	2,588			5,016			5,107			10,347
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $1,641, $3,184, $3,239 and $6,568 for the respective periods	(2,575		)	(4,999		)	(5,085		)	(10,312		)
Other comprehensive income, net of taxes	13			17			22			35
Comprehensive income attributable to Hawaiian Electric Company, Inc.	$	34,243		$	28,710		$	69,672		$	53,157

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Balance Sheets (unaudited)



(dollars in thousands, except par value)	June 30, 2014			December 31, 2013
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	52,010		$	51,883
Plant and equipment	5,830,723			5,701,875
Less accumulated depreciation	(2,150,913		)	(2,111,229		)
Construction in progress	168,280			143,233
Utility property, plant and equipment, net	3,900,100			3,785,762
Nonutility property, plant and equipment, less accumulated depreciation of $1,226 and $1,223 at respective dates	6,564			6,567
Total property, plant and equipment, net	3,906,664			3,792,329
Current assets
Cash and cash equivalents	12,720			62,825
Customer accounts receivable, net	175,634			175,448
Accrued unbilled revenues, net	141,869			144,124
Other accounts receivable, net	18,915			14,062
Fuel oil stock, at average cost	161,293			134,087
Materials and supplies, at average cost	60,879			59,044
Prepayments and other	61,891			52,857
Regulatory assets	78,945			69,738
Total current assets	712,146			712,185
Other long-term assets
Regulatory assets	503,700			506,186
Unamortized debt expense	8,905			9,003
Other	68,426			67,426
Total other long-term assets	581,031			582,615
Total assets	$	5,199,841		$	5,087,129
Capitalization and liabilities
Capitalization
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 15,429,105 shares)	$	102,880		$	102,880
Premium on capital stock	541,449			541,452
Retained earnings	974,028			948,624
Accumulated other comprehensive income, net of income taxes-retirement benefit plans	630			608
Common stock equity	1,618,987			1,593,564
Cumulative preferred stock — not subject to mandatory redemption	34,293			34,293
Long-term debt, net	1,206,545			1,206,545
Total capitalization	2,859,825			2,834,402
Commitments and contingencies (Note 3)
Current liabilities
Current portion of long-term debt	11,400			11,400
Short-term borrowings from non-affiliates	102,989			—
Accounts payable	153,743			189,559
Interest and preferred dividends payable	21,751			21,652
Taxes accrued	216,374			249,445
Regulatory liabilities	789			1,916
Other	64,569			63,881
Total current liabilities	571,615			537,853
Deferred credits and other liabilities
Deferred income taxes	557,056			507,161
Regulatory liabilities	354,191			347,383
Unamortized tax credits	77,713			73,539
Defined benefit pension and other postretirement benefit plans liability	252,785			262,162
Other	84,277			91,735
Total deferred credits and other liabilities	1,326,022			1,281,980
Contributions in aid of construction	442,379			432,894
Total capitalization and liabilities	$	5,199,841		$	5,087,129

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Statements of Changes in Common Stock Equity (unaudited)



	Common stock			Premium on capital			Retained			Accumulated other comprehensive
(in thousands)	Shares	Amount		stock			earnings			income (loss)			Total
Balance, December 31, 2013	15,429	$	102,880	$	541,452		$	948,624		$	608		$	1,593,564
Net income for common stock	—	—		—			69,650			—			69,650
Other comprehensive income, net of taxes	—	—		—			—			22			22
Common stock dividends	—	—		—			(44,246		)	—			(44,246		)
Common stock issuance expenses	—	—		(3		)	—			—			(3		)
Balance, June 30, 2014	15,429	$	102,880	$	541,449		$	974,028		$	630		$	1,618,987
Balance, December 31, 2012	14,665	$	97,788	$	468,045		$	907,273		$	(970	)	$	1,472,136
Net income for common stock	—	—		—			53,122			—			53,122
Other comprehensive income, net of taxes	—	—		—			—			35			35
Common stock dividends	—	—		—			(40,789		)	—			(40,789		)
Balance, June 30, 2013	14,665	$	97,788	$	468,045		$	919,606		$	(935	)	$	1,484,504

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)



Six months ended June 30	2014			2013
(in thousands)
Cash flows from operating activities
Net income	$	70,648		$	54,120
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	83,196			76,870
Other amortization	3,597			2,884
Increase in deferred income taxes	45,386			38,780
Change in tax credits, net	4,227			2,997
Allowance for equity funds used during construction	(2,996		)	(2,775		)
Change in cash overdraft	(1,038		)	—
Changes in assets and liabilities
Decrease (increase) in accounts receivable	(5,039		)	32,253
Decrease (increase) in accrued unbilled revenues	2,255			(4,889		)
Decrease (increase) in fuel oil stock	(27,206		)	43,974
Increase in materials and supplies	(1,835		)	(7,139		)
Increase in regulatory assets	(17,731		)	(37,586		)
Decrease in accounts payable	(63,306		)	(41,234		)
Change in prepaid and accrued income taxes and utility revenue taxes	(38,270		)	(38,123		)
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability	(498		)	989
Change in other assets and liabilities	(26,258		)	(9,419		)
Net cash provided by operating activities	25,132			111,702
Cash flows from investing activities
Capital expenditures	(145,734		)	(150,251		)
Contributions in aid of construction	13,209			17,188
Other	—			623
Net cash used in investing activities	(132,525		)	(132,440		)
Cash flows from financing activities
Common stock dividends	(44,246		)	(40,789		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(998		)	(998		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	102,989			53,992
Other	(457		)	(9		)
Net cash provided by financing activities	57,288			12,196
Net decrease in cash and cash equivalents	(50,105		)	(8,542		)
Cash and cash equivalents, beginning of period	62,825			17,159
Cash and cash equivalents, end of period	$	12,720		$	8,617

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1 · Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s and Hawaiian Electric's Form 10-K for the year ended December 31, 2013.

In the opinion of HEI’s and Hawaiian Electric's management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to fairly state the Company’s and Hawaiian Electric's financial position as of June 30, 2014 and December 31, 2013, the results of its operations for the three and six months ended June 30, 2014 and 2013, and its cash flows for the six months ended June 30, 2014 and 2013. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.

Reclassifications and revisions. In the fourth quarter of 2013, Hawaiian Electric changed its consolidated statements of income for 2013 and prior comparative periods from a utility presentation to a commercial company presentation, under which all operating revenues and expenses (including non-regulated revenues and expenses) are included in the determination of operating income. Additionally, income tax expense, which was previously included partially in operating expenses and partially in other income (deductions), is now entirely presented directly above net income in income taxes and includes income taxes related to non-regulated revenues and expenses.

In making the change to a commercial company presentation, the Company discovered that interest on the Utilities’ uncollected revenue balancing accounts and the income tax gross-up adjustment for allowance for funds used during construction (AFUDC)-equity were incorrectly included in HEI consolidated revenues and is revising its previously filed quarterly Consolidated Statements of Income for 2013 to move the amounts to “Interest expense, net-other than on deposit liabilities and other bank borrowings” and income taxes, respectively. The Company and the Utilities have also revised their property, plant and equipment as of December 31, 2013 to correct for an error that excluded Hawaiian Electric consolidated non-utility property plant and equipment amounts.

The table below illustrates the effects of the revisions on the previously filed financial statements:



	As previously			As
(in thousands)	filed			revised			Difference
HEI consolidated
Consolidated Statements of Income
Three months ended June 30, 2013
Revenues	$	796,730		$	794,567		$	(2,163	)
Operating income	82,370			80,207			(2,163		)
Interest expense, net—other than on deposit liabilities and other bank borrowings	(19,613		)	(18,442		)	1,171
Income before income taxes	64,715			63,723			(992		)
Income taxes	23,654			22,662			(992		)
Six months ended June 30, 2013
Revenues	1,580,794			1,576,799			(3,995		)
Operating income	153,027			149,032			(3,995		)
Interest expense, net—other than on deposit liabilities and other bank borrowings	(39,401		)	(37,173		)	2,228
Income before income taxes	117,529			115,762			(1,767		)
Income taxes	42,316			40,549			(1,767		)
Consolidated Balance Sheets
December 31, 2013
Property, plant and equipment, net of accumulated depreciation	3,858,947			3,865,514			6,567
Accumulated depreciation	(2,191,199		)	(2,192,422		)	(1,223		)
Other assets	519,194			512,627			(6,567		)
Hawaiian Electric consolidated
Consolidated Balance Sheets
December 31, 2013
Other assets	73,993			67,426			(6,567		)

The reclassifications and revisions made to prior periods’ financial statements for the three and six months ended June 30, 2013 and as of December 31, 2013 to conform to the presentation for the three and six months ended, and as of, June 30, 2014 did not affect previously reported net income and cash flows and were not considered material to previously filed financial statements.

2 · Segment financial information



(in thousands)	Electric utility		Bank		Other			Total
Three months ended June 30, 2014
Revenues from external customers	$	738,423	$	60,616	$	(382	)	$	798,657
Intersegment revenues (eliminations)	6		—		(6		)	—
Revenues	738,429		60,616		(388		)	798,657
Income (loss) before income taxes	55,126		17,048		(8,011		)	64,163
Income taxes (benefit)	20,397		5,372		(3,500		)	22,269
Net income (loss)	34,729		11,676		(4,511		)	41,894
Preferred stock dividends of subsidiaries	499		—		(26		)	473
Net income (loss) for common stock	34,230		11,676		(4,485		)	41,421

Six months ended June 30, 2014
Revenues from external customers	$	1,458,479	$	124,235	$	(308	)	$	1,582,406
Intersegment revenues (eliminations)	12		—		(12		)	—
Revenues	1,458,491		124,235		(320		)	1,582,406
Income (loss) before income taxes	112,292		38,672		(15,728		)	135,236
Income taxes (benefit)	41,644		12,457		(7,159		)	46,942
Net income (loss)	70,648		26,215		(8,569		)	88,294
Preferred stock dividends of subsidiaries	998		—		(52		)	946
Net income (loss) for common stock	69,650		26,215		(8,517		)	87,348
Assets (at June 30, 2014)	5,199,841		5,418,127		(825		)	10,617,143

Three months ended June 30, 2013
Revenues from external customers	$	728,519	$	66,027	$	21		$	794,567
Intersegment revenues (eliminations)	6		—		(6		)	—
Revenues	728,525		66,027		15			794,567
Income (loss) before income taxes	46,525		24,705		(7,507		)	63,723
Income taxes (benefit)	17,333		8,786		(3,457		)	22,662
Net income (loss)	29,192		15,919		(4,050		)	41,061
Preferred stock dividends of subsidiaries	499		—		(26		)	473
Net income (loss) for common stock	28,693		15,919		(4,024		)	40,588

Six months ended June 30, 2013
Revenues from external customers	$	1,445,954	$	130,783	$	62		$	1,576,799
Intersegment revenues (eliminations)	12		—		(12		)	—
Revenues	1,445,966		130,783		50			1,576,799
Income (loss) before income taxes	85,072		46,457		(15,767		)	115,762
Income taxes (benefit)	30,952		16,383		(6,786		)	40,549
Net income (loss)	54,120		30,074		(8,981		)	75,213
Preferred stock dividends of subsidiaries	998		—		(52		)	946
Net income (loss) for common stock	53,122		30,074		(8,929		)	74,267
Assets (at December 31, 2013)	5,087,129		5,243,824		9,091			10,340,044

Intercompany electricity sales of the Utilities to the bank 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, the profit on such sales is nominal and the elimination of electric sales revenues and expenses could distort segment operating income and net income for common stock.

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, the profit on such fees is nominal and the elimination of bank fee income and expenses could distort segment operating income and net income for common stock.

3 · Electric utility segment

Revenue taxes. The Utilities’ revenues include amounts for the recovery of various Hawaii state revenue taxes. Revenue taxes are generally recorded as an expense in the period the related revenues are recognized. However, the Utilities’ revenue tax payments to the taxing authorities in the period are based on the prior year’s billed revenues (in the case of public service company taxes and PUC fees) or on the current year’s cash collections from electric sales (in the case of franchise taxes). The Utilities included in the second quarters of 2014 and 2013 and the six months ended June 30, 2014 and 2013 approximately $64 million, $65 million, $129 million and $129 million, respectively, of revenue taxes in "revenues" and in "taxes, other than income taxes" expense.

Recent tax developments. In September 2013, the Internal Revenue Service (IRS) issued final regulations addressing the acquisition, production and improvement of tangible property, which were effective January 1, 2014. Management does not expect the impact of these new regulations will be material to the Utilities' financial statements since specific guidance on network (i.e., transmission and distribution) assets and generation property had already been received. The IRS also proposed regulations addressing the disposition of property.

The Utilities adopted the safe harbor guidelines with respect to network assets in 2011 and in June 2013, the IRS released a revenue procedure relating to deductions for repairs of generation property, which provides some guidance (that is elective) for taxpayers that own steam or electric generation property. This guidance defines the relevant components of generation property to be used in determining whether such component expenditures should be deducted as repairs or capitalized and depreciated by taxpayers. The revenue procedure also provides an extrapolation methodology that could be used by taxpayers in determining deductions for prior years’ repairs without going back to the specific documentation of those years. The guidance does not provide specific methods for determining the repairs amount. Management intends to adopt this guidance through an election in its 2014 tax return, which is expected to result in slightly improved cash flows.

In March 2014, HEI filed with the IRS an application, which requested a change in the method of accounting for revenues recorded to the Utilities’ revenue balancing accounts (RBAs) (from an accrual basis to a billed basis) for income tax purposes. On April 28, 2014, the Utilities received approval for this change from the IRS, effective January 1, 2014. HEI will include the effects of this change in its estimated income tax payments for 2014. This change will result in improved cash flows by deferring the payment of income taxes on the RBA revenues recognized until the revenues are billed but will reduce the interest to be accrued on the RBA balance as proposed by the Consumer Advocate.

Unconsolidated variable interest entities.

HECO Capital Trust III. HECO Capital Trust III (Trust III) was created and exists for the exclusive purposes of (i) issuing in March 2004 2,000,000 6.50% Cumulative Quarterly Income Preferred Securities, Series 2004 (2004 Trust Preferred Securities) ($50 million aggregate liquidation preference) to the public and trust common securities ($1.5 million aggregate liquidation preference) to Hawaiian Electric, (ii) investing the proceeds of these trust securities in 2004 Debentures issued by Hawaiian Electric in the principal amount of $31.5 million and issued by Hawaii Electric Light and Maui Electric each in the principal amount of $10 million, (iii) making distributions on these trust securities and (iv) engaging in only those other activities necessary or incidental thereto. The 2004 Trust Preferred Securities are mandatorily redeemable at the maturity of the underlying debt on March 18, 2034, which maturity may be extended to no later than March 18, 2053; and are currently redeemable at the issuer’s option without premium. The 2004 Debentures, together with the obligations of the Utilities under an expense agreement and Hawaiian Electric’s obligations under its trust guarantee and its guarantee of the obligations of Hawaii Electric Light and Maui Electric under their respective debentures, are the sole assets of Trust III. Taken together, Hawaiian Electric’s obligations under the Hawaiian Electric debentures, the Hawaiian Electric indenture, the subsidiary guarantees, the trust agreement, the expense agreement and trust guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of amounts due on the Trust Preferred Securities. Trust III has at all times been an unconsolidated subsidiary of Hawaiian Electric. Since Hawaiian Electric, as the holder of 100% of the trust common securities, does not absorb the majority of the variability of Trust III, Hawaiian Electric is not the primary beneficiary and does not consolidate Trust III in accordance with accounting rules on the consolidation of VIEs. Trust III’s balance sheets as of June 30, 2014 and December 31, 2013 each consisted of $51.5 million of 2004 Debentures; $50.0 million of 2004 Trust Preferred Securities; and $1.5 million of trust common securities. Trust III’s income statements for the six months ended June 30, 2014 and 2013 each consisted of $1.7 million of interest income received from the 2004 Debentures; $1.6 million of distributions to holders of the Trust Preferred Securities; and $0.1 million of common dividends on the trust common securities to Hawaiian Electric. As long as the 2004 Trust Preferred Securities are outstanding, Hawaiian Electric is not entitled to receive any funds from Trust III other than pro-rata distributions, subject to certain subordination provisions, on the trust common securities. In the event of a default by Hawaiian Electric in the performance of its obligations under the 2004 Debentures or under its Guarantees, or in the event any of the Utilities elect to defer payment of interest on any of their respective 2004 Debentures, then Hawaiian Electric will be subject to a number of restrictions, including a prohibition on the payment of dividends on its common stock.

Power purchase agreements. As of June 30, 2014, the Utilities had six PPAs for firm capacity and several other PPAs with variable generation independent power producers (IPPs) and Schedule Q providers (i.e., customers with cogeneration and/or small power production facilities with a capacity of 100 kilowatts (kWs) or less who buy power from or sell power to the Utilities), none of which are currently required to be consolidated as VIEs. The PPAs with AES Hawaii, Inc. (AES Hawaii), Kalaeloa Partners, L.P. (Kalaeloa), Hamakua Energy Partners, L.P. (HEP) and HPOWER comprise approximately 90% of IPP contractual firm capacity available to the Utilities. Purchases from all IPPs were as follows:



	Three months ended June 30				Six months ended June 30
(in millions)	2014		2013		2014		2013
AES Hawaii	$	36	$	37	$	69	$	60
Kalaeloa	74		79		141		143
HEP	8		9		20		20
HPOWER	16		12		32		27
Other IPPs	54		41		91		82
Total IPPs	$	188	$	178	$	353	$	332