0000354707 he:ElectricEnergySalesCommercialMember he:ElectricUtilitySegmentMember 2019-01-01 2019-09-30

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

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

New York Stock Exchange

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).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Hawaiian Electric Industries, Inc.o

Hawaiian Electric Company, Inc.o

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

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.

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 September 30, ~~2018~~2019

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended September 30, ~~2018~~2019

~~GLOSSARY OF TERMS, continued~~

GLOSSARY OF TERMS, continued

CAUTIONARY NOTE REGARDING 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 “will,” “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, political 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:

(ERP/EAM) project-related benefits (including $150 million in ~~the stabilization of the ERP/EAM system implementation could adversely affect the Utilities’ ability~~operation and maintenance (O&M) benefits) to ~~timely and accurately report financial information and make payments~~be delivered to ~~vendors and employees;~~customers over its 12-year estimated useful life;

the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” in 2020, which may require an increase in the allowance for loan losses and result in more volatility in the provision for loan losses;

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, Pacific Current and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether written or oral and whether as a result of new information, future events or otherwise.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Statements of Income (unaudited)

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

Condensed Consolidated Balance Sheets (unaudited)

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the ~~2017~~2018 Form 10-K.

Hawaiian Electric ~~Industries,~~Company, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Comprehensive~~ Income (unaudited)

Three months ended September 30 Nine months ended September 30
(in thousands) 2018 2017 2018 2017
Net income for common stock $ 65,900
$ 60,073
$ 152,201
$ 132,927
Other comprehensive income (loss), net of taxes:

Net unrealized gains (losses) on available-for-sale investment securities:

Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of tax benefits (taxes) of $1,876, $(137), $8,335 and $(1,619), respectively (5,123 ) 208
(22,768 ) 2,452
Derivatives qualifying as cash flow hedges:

Reclassification adjustment to net income, net of tax benefits of nil, nil, nil and $289, respectively —
—
—
454
Retirement benefit plans:

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $1,832, $2,516, $5,486 and $7,526, respectively 5,259
3,942
15,755
11,793
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $1,639, $2,290, $4,916 and $6,872, respectively (4,725 ) (3,596 ) (14,174 ) (10,790 )
Other comprehensive income (loss), net of taxes (4,589 ) 554
(21,187 ) 3,909
Comprehensive income attributable to Hawaiian Electric Industries, Inc. $ 61,311
$ 60,627
$ 131,014
$ 136,836



	Three months ended September 30						Nine months ended September 30
(in thousands)	2019			2018			2019			2018
Revenues	$	688,330		$	687,409		$	1,900,609		$	1,865,962
Expenses
Fuel oil	199,093			206,551			541,322			545,236
Purchased power	175,037			177,590			472,336			478,238
Other operation and maintenance	124,415			113,553			361,805			333,805
Depreciation	53,935			50,983			161,795			151,810
Taxes, other than income taxes	64,057			64,696			179,304			176,324
Total expenses	616,537			613,373			1,716,562			1,685,413
Operating income	71,793			74,036			184,047			180,549
Allowance for equity funds used during construction	3,250			1,962			9,335			8,239
Retirement defined benefits expense—other than service costs	(723		)	(682		)	(2,127		)	(2,934		)
Interest expense and other charges, net	(17,429		)	(18,968		)	(53,945		)	(54,822		)
Allowance for borrowed funds used during construction	1,208			1,006			3,465			3,815
Income before income taxes	58,099			57,354			140,775			134,847
Income taxes	10,822			7,144			27,800			24,995
Net income	47,277			50,210			112,975			109,852
Preferred stock dividends of subsidiaries	228			228			686			686
Net income attributable to Hawaiian Electric	47,049			49,982			112,289			109,166
Preferred stock dividends of Hawaiian Electric	270			270			810			810
Net income for common stock	$	46,779		$	49,712		$	111,479		$	108,356

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the ~~2017 Form 10-K.~~

~~Hawaiian Electric Industries, Inc. and Subsidiaries~~

~~Condensed Consolidated Balance Sheets (unaudited)~~

(dollars in thousands) September 30, 2018 December 31, 2017
Assets

Cash and cash equivalents $ 172,054
$ 261,881
Accounts receivable and unbilled revenues, net 336,309
263,209
Available-for-sale investment securities, at fair value 1,387,571
1,401,198
Held-to-maturity investment securities, at amortized cost 102,498
44,515
Stock in Federal Home Loan Bank, at cost 8,158
9,706
Loans held for investment, net 4,700,232
4,617,131
Loans held for sale, at lower of cost or fair value 1,036
11,250
Property, plant and equipment, net of accumulated depreciation of $2,651,109 and $2,553,295 at September 30, 2018 and December 31, 2017, respectively 4,694,101
4,460,248
Regulatory assets 830,924
869,297
Other 596,481
513,535
Goodwill 82,190
82,190
Total assets $ 12,911,554
$ 12,534,160
Liabilities and shareholders’ equity

Liabilities

Accounts payable $ 167,192
$ 193,714
Interest and dividends payable 30,280
25,837
Deposit liabilities 6,130,415
5,890,597
Short-term borrowings—other than bank 203,359
117,945
Other bank borrowings 71,110
190,859
Long-term debt, net—other than bank 1,782,242
1,683,797
Deferred income taxes 385,651
388,430
Regulatory liabilities 932,352
880,770
Defined benefit pension and other postretirement benefit plans liability 496,753
509,514
Other 545,862
521,018
Total liabilities 10,745,216
10,402,481
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: 108,879,245 shares and 108,787,807 shares at September 30, 2018 and December 31, 2017, respectively 1,667,371
1,662,491
Retained earnings 527,802
476,836
Accumulated other comprehensive loss, net of tax benefits (63,128 ) (41,941 )
Total shareholders’ equity 2,132,045
2,097,386
Total liabilities and shareholders’ equity $ 12,911,554
$ 12,534,160

~~This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.~~

~~Hawaiian Electric Industries, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)~~

Common stock Retained
Accumulated
other
comprehensive

(in thousands) Shares Amount Earnings income (loss) Total
Balance, December 31, 2017 108,788
$ 1,662,491
$ 476,836
$ (41,941 ) $ 2,097,386
Net income for common stock —
—
152,201
—
152,201
Other comprehensive loss, net of tax benefits —
—
—
(21,187 ) (21,187 )
Issuance of common stock, net of expenses 91
4,880
—
—
4,880
Common stock dividends (93¢ per share) —
—
(101,235 ) —
(101,235 )
Balance, September 30, 2018 108,879
$ 1,667,371
$ 527,802
$ (63,128 ) $ 2,132,045
Balance, December 31, 2016 108,583
$ 1,660,910
$ 438,972
$ (33,129 ) $ 2,066,753
Net income for common stock —
—
132,927
—
132,927
Other comprehensive income, net of taxes —
—
—
3,909
3,909
Issuance of common stock, net of expenses 203
582
—
—
582
Common stock dividends (93¢ per share) —
—
(101,149 ) —
(101,149 )
Balance, September 30, 2017 108,786
$ 1,661,492
$ 470,750
$ (29,220 ) $ 2,103,022

~~This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.~~

~~Hawaiian Electric Industries, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Cash Flows (unaudited)~~

Nine months ended September 30
(in thousands) 2018 2017
Cash flows from operating activities

Net income $ 153,618
$ 134,344
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation of property, plant and equipment 159,646
150,123
Other amortization 31,473
15,362
Provision for loan losses 12,337
7,231
Loans originated and purchased, held for sale (105,956 ) (105,816 )
Proceeds from sale of loans, held for sale 109,335
119,731
Deferred income taxes 10,823
21,397
Share-based compensation expense 5,891
4,383
Allowance for equity funds used during construction (8,239 ) (8,908 )
Other (4,524 ) (1,350 )
Changes in assets and liabilities

Increase in accounts receivable and unbilled revenues, net (79,128 ) (26,250 )
Decrease (increase) in fuel oil stock (5,060 ) 6,177
Decrease (increase) in regulatory assets (6,474 ) 3,922
Increase (decrease) in accounts, interest and dividends payable (7,122 ) 18,581
Change in prepaid and accrued income taxes, tax credits and utility revenue taxes (32,006 ) 2,828
Increase in defined benefit pension and other postretirement benefit plans liability 7,517
670
Change in other assets and liabilities 15,548
(22,311 )
Net cash provided by operating activities 257,679
320,114
Cash flows from investing activities

Available-for-sale investment securities purchased (190,411 ) (369,467 )
Principal repayments on available-for-sale investment securities 168,334
155,026
Purchases of held-to-maturity investment securities (62,096 ) —
Principal repayments of held-to-maturity investment securities 4,007
—
Purchase of stock from Federal Home Loan Bank (9,933 ) (2,868 )
Redemption of stock from Federal Home Loan Bank 11,480
4,380
Net decrease (increase) in loans held for investment (96,212 ) 13,188
Proceeds from sale of commercial loans 7,149
31,427
Proceeds from sale of real estate acquired in settlement of loans 589
411
Capital expenditures (404,984 ) (343,375 )
Contributions in aid of construction 24,361
40,603
Contributions to low income housing investments (7,714 ) —
Other 13,669
1,345
Net cash used in investing activities (541,761 ) (469,330 )
Cash flows from financing activities

Net increase in deposit liabilities 137,443
203,397
Net increase in short-term borrowings with original maturities of three months or less 85,369
24,498
Net increase in retail repurchase agreements 32,626
24,469
Proceeds from other bank borrowings 237,000
59,500
Repayments of other bank borrowings (287,000 ) (123,034 )
Proceeds from issuance of long-term debt 100,000
265,000
Repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds (1,867 ) (265,000 )
Withheld shares for employee taxes on vested share-based compensation (996 ) (3,796 )
Common stock dividends (101,235 ) (101,149 )
Preferred stock dividends of subsidiaries (1,417 ) (1,417 )
Other (5,668 ) (9,531 )
Net cash provided by financing activities 194,255
72,937
Net decrease in cash and cash equivalents (89,827 ) (76,279 )
Cash and cash equivalents, beginning of period 261,881
278,452
Cash and cash equivalents, end of period $ 172,054
$ 202,173

~~This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.~~

~~Hawaiian Electric Company, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Income (unaudited)~~

Three months ended September 30 Nine months ended September 30
(in thousands) 2018 2017 2018 2017
Revenues $ 687,409
$ 598,769
$ 1,865,962
$ 1,674,255
Expenses

Fuel oil 206,551
146,258
545,236
431,787
Purchased power 177,590
160,347
478,238
440,538
Other operation and maintenance 113,553
98,681
333,805
302,437
Depreciation 50,983
48,206
151,810
144,578
Taxes, other than income taxes 64,696
56,780
176,324
159,575
Total expenses 613,373
510,272
1,685,413
1,478,915
Operating income 74,036
88,497
180,549
195,340
Allowance for equity funds used during construction 1,962
3,482
8,239
8,908
Retirement defined benefits expense—other than service costs (682 ) (1,421 ) (2,934 ) (4,279 )
Interest expense and other charges, net (18,968 ) (16,907 ) (54,822 ) (52,625 )
Allowance for borrowed funds used during construction 1,006
1,339
3,815
3,371
Income before income taxes 57,354
74,990
134,847
150,715
Income taxes 7,144
27,005
24,995
54,623
Net income 50,210
47,985
109,852
96,092
Preferred stock dividends of subsidiaries 228
228
686
686
Net income attributable to Hawaiian Electric 49,982
47,757
109,166
95,406
Preferred stock dividends of Hawaiian Electric 270
270
810
810
Net income for common stock $ 49,712
$ 47,487
$ 108,356
$ 94,596

~~This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017~~2018 Form 10-K.

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.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)


	Three months ended September 30						Nine months ended September 30						Three months ended September 30						Nine months ended September 30
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Net income for common stock	$	49,712		$	47,487		$	108,356		$	94,596		$	46,779		$	49,712		$	111,479		$	108,356
Other comprehensive income (loss), net of taxes:
Derivatives qualifying as cash flow hedges:
Reclassification adjustment to net income, net of tax benefits of nil, nil, nil and $289, respectively	—			—			—			454
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $1,648, $2,306, $4,945 and $6,916, respectively	4,753			3,618			14,259			10,857
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $1,639, $2,290, $4,916 and $6,872, respectively	(4,725		)	(3,596		)	(14,174		)	(10,790		)
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $874, $1,648, $2,484 and $4,945, respectively													2,519			4,753			7,162			14,259
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $865, $1,639, $2,459 and $4,916, respectively													(2,493		)	(4,725		)	(7,089		)	(14,174		)
Other comprehensive income, net of taxes	28			22			85			521			26			28			73			85
Comprehensive income attributable to Hawaiian Electric Company, Inc.	$	49,740		$	47,509		$	108,441		$	95,117		$	46,805		$	49,740		$	111,552		$	108,441

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the ~~2017~~2018 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)


(dollars in thousands, except par value)	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	53,515		$	53,177		$	51,330		$	49,667
Plant and equipment	6,720,046			6,401,040			7,097,286			6,809,671
Less accumulated depreciation	(2,567,708		)	(2,476,352		)	(2,686,388		)	(2,577,342		)
Construction in progress	193,086			263,094			226,556			233,145
Utility property, plant and equipment, net	4,398,939			4,240,959			4,688,784			4,515,141
Nonutility property, plant and equipment, less accumulated depreciation of $1,254 as of September 30, 2018 and $1,251 as of December 31, 2017	7,580			7,580
Nonutility property, plant and equipment, less accumulated depreciation of $110 and $1,255 as of September 30, 2019 and December 31, 2018, respectively							6,958			6,961
Total property, plant and equipment, net	4,406,519			4,248,539			4,695,742			4,522,102
Current assets
Cash and cash equivalents	7,224			12,517			32,507			35,877
Customer accounts receivable, net	178,785			127,889			163,093			177,896
Accrued unbilled revenues, net	127,702			107,054			123,820			121,738
Other accounts receivable, net	3,378			7,163			4,618			6,215
Fuel oil stock, at average cost	91,822			86,873			84,543			79,935
Materials and supplies, at average cost	58,507			54,397			60,810			55,204
Prepayments and other	60,732			25,355			46,321			32,118
Regulatory assets	89,430			88,390			32,951			71,016
Total current assets	617,580			509,638			548,663			579,999
Other long-term assets
Operating lease right-of-use assets							192,254			—
Regulatory assets	741,494			780,907			716,316			762,410
Other	116,534			91,529			107,993			102,992
Total other long-term assets	858,028			872,436			1,016,563			865,402
Total assets	$	5,882,127		$	5,630,613		$	6,260,968		$	5,967,503
Capitalization and liabilities
Capitalization
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 16,142,216 shares at September 30, 2018 and December 31, 2017)	$	107,634		$	107,634
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 16,751,488 shares at September 30, 2019 and December 31, 2018)							$	111,696		$	111,696
Premium on capital stock	614,667			614,675			681,305			681,305
Retained earnings	1,155,070			1,124,193			1,200,081			1,164,541
Accumulated other comprehensive loss, net of tax benefits	(1,134		)	(1,219		)
Accumulated other comprehensive income, net of taxes-retirement benefit plans							172			99
Common stock equity	1,876,237			1,845,283			1,993,254			1,957,641
Cumulative preferred stock — not subject to mandatory redemption	34,293			34,293			34,293			34,293
Long-term debt, net	1,418,631			1,318,516			1,322,255			1,418,802
Total capitalization	3,329,161			3,198,092			3,349,802			3,410,736
Commitments and contingencies (Note 3)
Current liabilities
Current portion of operating lease liabilities							62,758			—
Current portion of long-term debt	49,993			49,963			95,965			—
Short-term borrowings from non-affiliates	85,913			4,999			112,353			25,000
Accounts payable	122,932			159,610			152,562			171,791
Interest and preferred dividends payable	28,258			22,575			27,540			23,215
Taxes accrued, including revenue taxes	195,776			199,101			204,839			233,333
Regulatory liabilities	10,159			3,401			19,516			17,977
Other	81,054			59,456			67,899			60,003
Total current liabilities	574,085			499,105			743,432			531,319
Deferred credits and other liabilities
Operating lease liabilities							128,812			—
Deferred income taxes	401,069			394,041			392,561			383,197
Regulatory liabilities	922,193			877,369			944,224			932,259
Unamortized tax credits	93,073			90,369			90,720			91,522
Defined benefit pension and other postretirement benefit plans liability	460,279			472,948			500,186			503,659
Other	102,267			98,689			111,231			114,811
Total deferred credits and other liabilities	1,978,881			1,933,416			2,167,734			2,025,448
Total capitalization and liabilities	$	5,882,127		$	5,630,613		$	6,260,968		$	5,967,503

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the ~~2017~~2018 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited)


	Common stock			Premium on capital			Retained			Accumulated other comprehensive						Common stock			Premium on capital			Retained			Accumulated other comprehensive
(in thousands)	Shares	Amount		stock			earnings			income (loss)			Total			Shares	Amount		stock			earnings			income (loss)			Total
Balance, December 31, 2018																16,751	$	111,696	$	681,305		$	1,164,541		$	99		$	1,957,641
Net income for common stock																—	—		—			32,126			—			32,126
Other comprehensive income, net of taxes																—	—		—			—			24			24
Common stock dividends																—	—		—			(25,313		)	—			(25,313		)
Balance, March 31, 2019																16,751	111,696		681,305			1,171,354			123			1,964,478
Net income for common stock																—	—		—			32,574			—			32,574
Other comprehensive income, net of taxes																—	—		—			—			23			23
Common stock dividends																—	—		—			(25,313		)	—			(25,313		)
Balance, June 30, 2019																16,751	111,696		681,305			1,178,615			146			1,971,762
Net income for common stock																—	—		—			46,779			—			46,779
Other comprehensive income, net of taxes																—	—		—			—			26			26
Common stock dividends																—	—		—			(25,313		)	—			(25,313		)
Balance, September 30, 2019																16,751	$	111,696	$	681,305		$	1,200,081		$	172		$	1,993,254
Balance, December 31, 2017	16,142	$	107,634	$	614,675		$	1,124,193		$	(1,219	)	$	1,845,283		16,142	$	107,634	$	614,675		$	1,124,193		$	(1,219	)	$	1,845,283
Net income for common stock	—	—		—			108,356			—			108,356			—	—		—			27,475			—			27,475
Other comprehensive income, net of taxes	—	—		—			—			85			85			—	—		—			—			31			31
Common stock dividends	—	—		—			(77,479		)	—			(77,479		)	—	—		—			(25,826		)	—			(25,826		)
Common stock issuance expenses	—	—		(8		)	—			—			(8		)	—	—		(8		)	—			—			(8		)
Balance, September 30, 2018	16,142	$	107,634	$	614,667		$	1,155,070		$	(1,134	)	$	1,876,237
Balance, December 31, 2016	16,020	$	106,818	$	601,491		$	1,091,800		$	(322	)	$	1,799,787
Balance, March 31, 2018																16,142	107,634		614,667			1,125,842			(1,188		)	1,846,955
Net income for common stock	—	—		—			94,596			—			94,596			—	—		—			31,169			—			31,169
Other comprehensive income, net of taxes	—	—		—			—			521			521			—	—		—			—			26			26
Common stock dividends	—	—		—			(65,825		)	—			(65,825		)	—	—		—			(25,826		)	—			(25,826		)
Common stock issuance expenses	—	—		(4		)	—			—			(4		)
Balance, September 30, 2017	16,020	$	106,818	$	601,487		$	1,120,571		$	199		$	1,829,075
Balance, June 30, 2018																16,142	107,634		614,667			1,131,185			(1,162		)	1,852,324
Net income for common stock																—	—		—			49,712			—			49,712
Other comprehensive income, net of taxes																—	—		—			—			28			28
Common stock dividends																—	—		—			(25,827		)	—			(25,827		)
Balance, September 30, 2018																16,142	$	107,634	$	614,667		$	1,155,070		$	(1,134	)	$	1,876,237

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the ~~2017~~2018 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)


		Nine months ended September 30						Nine months ended September 30
(in thousands)		2018			2017			2019			2018
Cash flows from operating activities
Net income		$	109,852		$	96,092		$	112,975		$	109,852
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment		151,810			144,578			161,795			151,810
Other amortization		19,823			6,118			21,476			19,823
Deferred income taxes	��	12,835			29,537			(1,386		)	12,835
Allowance for equity funds used during construction		(8,239		)	(8,908		)	(9,335		)	(8,239		)
Other		(1,952		)	526			(5,629		)	(1,952		)
Changes in assets and liabilities
Increase in accounts receivable		(53,139		)	(8,087		)
Decrease (increase) in accounts receivable								14,337			(53,139		)
Increase in accrued unbilled revenues		(20,648		)	(18,014		)	(2,082		)	(20,648		)
Decrease (increase) in fuel oil stock		(4,949		)	6,177
Increase in fuel oil stock								(4,608		)	(4,949		)
Increase in materials and supplies		(4,110		)	(2,280		)	(5,606		)	(4,110		)
Decrease (increase) in regulatory assets		(6,474		)	3,922			54,274			(6,474		)
Increase (decrease) in accounts payable		(8,712		)	6,130
Decrease in accounts payable								(9,261		)	(8,712		)
Change in prepaid and accrued income taxes, tax credits and revenue taxes		(37,137		)	5,291			(32,094		)	(37,137		)
Increase in defined benefit pension and other postretirement benefit plans liability		5,888			453
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability								(2,837		)	5,888
Change in other assets and liabilities		38,874			(2,662		)	(9,401		)	38,874
Net cash provided by operating activities		193,722			258,873			282,618			193,722
Cash flows from investing activities
Capital expenditures		(334,730		)	(306,975		)	(297,807		)	(310,369		)
Contributions in aid of construction		24,361			40,603
Other		9,811			8,114			2,662			9,811
Net cash used in investing activities		(300,558		)	(258,258		)	(295,145		)	(300,558		)
Cash flows from financing activities
Common stock dividends		(77,479		)	(65,825		)	(75,939		)	(77,479		)
Preferred stock dividends of Hawaiian Electric and subsidiaries		(1,496		)	(1,496		)	(1,496		)	(1,496		)
Proceeds from issuance of short-term debt								25,000			—
Proceeds from issuance of long-term debt		100,000			265,000			200,000			100,000
Funds transferred for redemption of special purpose revenue bonds		—			(265,000		)
Repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds								(201,546		)	—
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less		80,914			6,000			62,353			80,914
Other		(396		)	(3,593		)	785			(396		)
Net cash provided by (used in) financing activities		101,543			(64,914		)
Net cash provided by financing activities								9,157			101,543
Net decrease in cash and cash equivalents		(5,293		)	(64,299		)	(3,370		)	(5,293		)
Cash and cash equivalents, beginning of period		12,517			74,286			35,877			12,517
Cash and cash equivalents, end of period		$	7,224		$	9,987		$	32,507		$	7,224

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the ~~2017~~2018 Form 10-K.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 · Basis of presentation

The accompanying unaudited condensed 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 unaudited condensed consolidated 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 condensed 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, ~~2017~~2018.

In the opinion of HEI’s and Hawaiian Electric’s management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments required by GAAP to fairly state consolidated HEI’s and Hawaiian Electric’s financial positions as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 and the results of their operations for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 and cash flows for the nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. All such adjustments are of a normal recurring nature, unless otherwise disclosed below or in other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.

Recent accounting pronouncements.

~~Revenues from contracts with customers~~Leases. In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of the guidance in ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The Company and Hawaiian Electric adopted ASU No. 2014-09 (and subsequently issued revenue-related ASUs, as applicable) in the first quarter of 2018. There was no cumulative effect adjustment and no impact on the timing or pattern of revenue recognition, but ASU No. 2014-09 required changes with respect to the Company’s and Hawaiian Electric’s revenue disclosures. See Note 7.

~~Financial instruments~~. In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which, among other things:

Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.

~~Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.~~

~~Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables).~~

Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.

~~The Company adopted ASU No. 2016-01 in the first quarter of 2018 and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated financial statements.~~

~~Cash flows~~. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on eight specific cash flow issues - debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle.

The Company adopted ASU No. 2016-15 in the first quarter of 2018 using a retrospective transition method and there was no impact from the adoption to the Company’s and Hawaiian Electric’s consolidated statements of cash flows.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

~~Restricted cash~~. In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

The Company adopted ASU No. 2016-18 in the first quarter of 2018 using a retrospective transition method and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated statements of cash flows.

~~Definition of a Business~~. In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations—Clarifying the Definition of a Business.” This update clarifies the definition of a business and adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted ASU No. 2017-01 in the first quarter of 2018 and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated financial statements.

~~Net periodic pension cost and net periodic postretirement benefit cost~~. In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost (NPPC) and net periodic postretirement benefit cost (NPBC) as defined in paragraphs 715-30-35-4 and 715-60-35-9 to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization under GAAP, when applicable.

The Company adopted ASU No. 2017-07 in the first quarter of 2018: (1) retrospectively for the presentation in the income statement of the service cost component and the other components of NPPC and NPBC, and (2) prospectively for the capitalization in assets of the service cost component of NPPC and NPBC for Hawaiian Electric and its subsidiaries. HEI and ASB do not capitalize pension and OPEB costs.

The PUC approved in the Utilities’ rate cases, stipulated agreements to defer non-service cost components of NPPC and NPBC, which would have been capitalized prior to ASU No. 2017-07, as part of each utility’s pension tracking mechanisms. Such treatment is effective starting in 2018 and continues until each utility’s next rate case. In each utility’s next rate case, rates established would include recovery of the deferred non-service cost components and each utility plans to seek to capitalize only the service components of NPPC and NPBC going forward, which reflects the requirements of ASU No. 2017-07.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Thus, the adoption of ASU 2017-07 in the first quarter of 2018 does not have a net income impact. The following table summarizes the impact to the prior period financial statements of the adoption of ASU No. 2017-07:

Three months ended
September 30, 2017

Nine months ended
September 30, 2017
(in thousands) As previously filed Adjustment from adoption of ASU No. 2017-07 As currently reported As previously filed Adjustment from adoption of ASU No. 2017-07 As currently reported
HEI Condensed Consolidated Income Statement
Expenses
Electric utility $ 511,693
$ (1,421 ) $ 510,272
$ 1,483,194
$ (4,279 ) $ 1,478,915
Bank 47,525
(212 ) 47,313
146,754
(608 ) 146,146
Other 4,422
(295 ) 4,127
13,777
(823 ) 12,954
Total expenses 563,640
(1,928 ) 561,712
1,643,725
(5,710 ) 1,638,015
Operating income
Electric utility 87,076
1,421
88,497
191,061
4,279
195,340
Bank 26,764
212
26,976
75,720
608
76,328
Other (4,295 ) 295
(4,000 ) (13,478 ) 823
(12,655 )
Total operating income 109,545
1,928
111,473
253,303
5,710
259,013
Retirement defined benefits expense--other than service costs —
(1,928 ) (1,928 ) —
(5,710 ) (5,710 )
Hawaiian Electric Condensed Consolidated Income Statement
Other operation and maintenance 100,102
(1,421 ) 98,681
306,716
(4,279 ) 302,437
Total expense 511,693
(1,421 ) 510,272
1,483,194
(4,279 ) 1,478,915
Operating income 87,076
1,421
88,497
191,061
4,279
195,340
Retirement defined benefits expense--other than service costs —
(1,421 ) (1,421 ) —
(4,279 ) (4,279 )
Hawaiian Electric Condensed Consolidating Income Statement (in Note 3)
Hawaiian Electric (parent only)
Other operation and maintenance 66,221
(1,225 ) 64,996
204,460
(3,812 ) 200,648
Total expense 367,619
(1,225 ) 366,394
1,058,382
(3,812 ) 1,054,570
Operating income 61,648
1,225
62,873
128,142
3,812
131,954
Retirement defined benefits expense--other than service costs —
(1,225 ) (1,225 ) —
(3,812 ) (3,812 )
Hawaii Electric Light
Other operation and maintenance 16,593
15
16,608
49,667
183
49,850
Total expense 71,292
15
71,307
212,692
183
212,875
Operating income 13,042
(15 ) 13,027
32,334
(183 ) 32,151
Retirement defined benefits expense--other than service costs —
15
15
—
183
183
Maui Electric
Other operation and maintenance 17,288
(211 ) 17,077
52,589
(650 ) 51,939
Total expense 72,782
(211 ) 72,571
212,120
(650 ) 211,470
Operating income 12,416
211
12,627
30,636
650
31,286
Retirement defined benefits expense--other than service costs —
(211 ) (211 ) —
(650 ) (650 )
ASB Statements of Income Data (in Note 4)
Compensation and employee benefits 23,724
(212 ) 23,512
71,703
(608 ) 71,095
Other expense 5,050
212
5,262
14,066
608
14,674

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

~~Derivatives and Hedging.~~ In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which is intended to improve and simplify accounting rules around hedge accounting. The amendments in ASU No. 2017-12 improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The amendments also expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the new guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, but early adoption is permitted. The Company early adopted ASU No. 2017-12 in the second quarter of 2018, with an effective date of April 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.

~~Leases~~. ~~In February 2016, the FASB issued ASU~~ No. 2016-02, “Leases (Topic 842),” which requires that lessees recognize a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset, representing its right to use the underlying asset for the lease term, for all leases (except short-term leases) at the commencement date. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election and recognize lease expense for such leases generally on a straight-line basis over the lease term. For finance leases, a lessee is required to recognize interest on the lease liability separately from amortization of the ~~right-of-use~~ROU asset in the ~~statement~~consolidated statements of income. For operating leases, a lessee is required to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis.

The Company ~~plans to adopt~~adopted ASU No. 2016-02 ~~in the first quarter of~~on January 1, 2019 and ~~is currently analyzing~~used the ~~potential impact~~effective date as the date of ~~adoption. The Company plans to elect the practical expedient package provided by the new standard under which the Company~~initial application. Consequently, financial information for dates and periods before January 1, 2019 will not ~~have to reassess whether any expired or existing contracts are or contain leases, whether there is a change in lease classification for any expired or existing leases~~be updated and the disclosures required under the new standard ~~or whether there were initial direct costs for any existing leases that would~~will not be ~~treated differently under the new standard. The Company also plans to elect the~~ ~~additional adoption method to initially apply the new requirements as of the effective date, i.e.~~provided (i.e., ~~January 1, 2019, by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Additionally,~~ the Company will continue to report prior comparative periods presented in the financial statements ~~in the period of adoption~~ under ~~ASC~~Accounting Standards Codification (ASC) 840, including the required disclosures under ASC ~~840.~~840).

The ~~Company is in the process of analyzing the measurement provisions~~most significant effect of the new standard relates to the recognition of new ROU assets and ~~their impact~~lease liabilities on ~~its~~the Company’s balance sheet for purchase power agreements and real estate operating leases. On adoption, the Company recognized lease liabilities of approximately $257 million for the Company and approximately $236 million for the Utilities ($215 million related to PPAs), based on the present value of the remaining minimum rental payments, with corresponding ROU assets for existing operating leases, under current leasing standards. In determining the lease ~~arrangements that fall within~~liability upon transition, the ~~scope~~Company used the incremental borrowing rates as of ~~ASU No. 2016-02.~~the adoption date based on the remaining lease term and remaining lease payments. See Note 6 for more information.

Credit losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU No. 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date (based on historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU No. 2016-13 amends the accounting for credit losses on available-for-sale ~~(AFS)~~ debt securities and purchased financial assets with credit deterioration. The other-than-temporary impairment model of accounting for credit losses on ~~AFS~~available-for-sale debt securities will be replaced with an estimate of expected credit losses only when the fair value is below the amortized cost of the asset. The length of time the fair value of an ~~AFS~~available-for-sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists. The ~~AFS~~available-for-sale debt security model will also require the use of an allowance to record the estimated losses (and subsequent recoveries).

The ~~accounting~~Company has assembled a cross-functional team that continues to work through its implementation plan. The Company is in the final stages of validating and testing the models that will be used to calculate the credit loss reserve for ~~the initial recognition~~its loan portfolio and is conducting parallel runs of ~~the estimated expected credit losses for purchased financial assets with credit deterioration would be recognized through an~~its new processes and controls. The allowance for credit losses ~~with~~is a material

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

estimate of the Company, and given the change from an ~~offset~~incurred loss model to a methodology that considers the credit loss over the expected life of the loan, the Company believes that the allowance for loan losses for its loans held for investment will increase at the adoption date. The magnitude of the increase will depend on the composition, characteristics and quality of its loans and off balance sheet credit exposures as well as the prevailing economic conditions as of the adoption date. Based on its assessment, the Company does not expect that the new standard will have a material impact to the ~~cost basis~~Utilities’ customer and other accounts receivables and accrued unbilled revenue. The Company will continue to make refinements to its credit loss model throughout the remainder of ~~the related financial asset at acquisition (i.e., there is no impact to net income at initial recognition).~~

~~The Company~~2019 and plans to adopt ASU No. 2016-13 in the first quarter of 2020. The guidance is to be applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at the date of initial ~~application.~~application (January 1, 2020), and the Company expects the bank to remain well capitalized under the regulatory framework after the initial application of ASU No. 2016-03.

Codification Improvements. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which is intended to clarify certain issues related to the accounting for financial instruments.

•

With respect to Topic 326, Financial Instruments - Credit Losses, ASU No. 2019-04 allows entities to measure the allowance for credit losses on accrued interest receivable balances separately from other components of the amortized cost basis of associated financial assets, or to make an accounting policy election not to measure an allowance for credit losses on accrued interest receivable amounts if an entity writes off the uncollectible accrued interest receivable balance in a timely manner and makes certain disclosures. ASU No. 2019-04 also allows an entity to make an accounting policy election regarding the presentation and disclosure of accrued interest receivables and the related allowance for credit losses for those accrued interest receivables. ASU No. 2019-04 also clarifies certain issues related to transfers between classifications or categories for loans and debt securities, recoveries, variable interest rates and prepayments, vintage disclosures, and contractual extensions and renewal options.


•	With respect to Topic 815, Derivatives and Hedging, ASU No. 2019-04 provides amendments, among others, that address partial-term fair value hedges, fair value hedge basis adjustments, and certain transition requirements.


•	With respect to Topic 825, Financial Instruments, ASU No. 2019-04 clarifies the scope of the guidance and disclosure requirements with respect to recognizing and measuring financial instruments.

The amended guidance in ASU No. 2019-04 will be effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The Company ~~has assembled a project team that meets regularly~~plans to ~~evaluate~~adopt ASU No. 2019-04 in the ~~provisions~~first quarter of ~~this ASU, identify additional data requirements necessary~~2020 and ~~determine an approach for implementation. The team has assigned roles and responsibilities and developed key tasks to complete and a general timeline to be followed. The Company~~ is currently evaluating the ~~effect that this~~impact of the ASU ~~will have~~ on the Company’s consolidated financial statements.

Reclassifications. Reclassifications made to prior year financial statements to conform to the 2019 presentation include classifying contributions in aid of construction with capital expenditures in the cash flows from investing activities section of the condensed consolidated statements of cash flows for HEI and ~~disclosures. Economic conditions~~Hawaiian Electric. In addition, prior period disclosure of proceeds and repayments of other bank borrowings and the ~~composition~~net increase in retail repurchase agreements contained in the “Net cash provided by financing activities” section of the ~~Company’s loan portfolio at~~consolidated statements of cash flows have been combined to conform to the ~~time of adoption will influence the extent of the adopting accounting adjustment.~~current period presentation.

1311

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

~~Compensation-defined benefit plans~~. In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” that makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The new guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. ASU No. 2018-14 is effective ~~for fiscal years ending after December 15, 2020. The Company is evaluating the impact of the adoption of ASU No. 2018-14 on its financial statement disclosures, but does not expect it to have a material impact.~~

~~Cloud computing implementation costs~~. In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. ASU ~~No.~~ ~~2018-15 is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the impact of the adoption of ASU~~ ~~No.~~ ~~2018-15 on its consolidated financial statements.~~

~~Condensed Consolidated Statements of Cash Flows error.~~ Subsequent to the issuance of interim Condensed Consolidated Financial Statements (unaudited) for the quarter ended September 30, 2017, the Company and the Utilities identified an error within their previously reported interim Condensed Consolidated Statements of Cash Flows (unaudited). The timing of certain capital expenditure payments, including those that had retainage balances or were related to certain capitalized amounts were not reflected timely. The Company and the Utilities have evaluated the effect of the error, both qualitatively and quantitatively, and concluded that it is immaterial to their respective previously issued condensed consolidated financial statements. For the nine months ended September 30, 2017, the correction of this error resulted in increases in Net Cash Provided by Operating Activities (impacting the change in Accounts, Interest and Dividends Payable for the Company and Accounts Payable for the Utilities) and Net Cash Used in Investing Activities (impacting the Capital Expenditures for the Company and the Utilities) of $29 million.

~~Reclassifications.~~ Reclassifications made to prior year-end financial statements to conform to 2018 presentation include a reclassification of contributions in aid of construction (CIAC) balances to “Property, plant and equipment, net” and “Total property, plant and equipment, net” for the Company and Hawaiian Electric, respectively, which reduced the amounts of the respective balances.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Note 2 · Segment financial information



(in thousands)	Electric utility		Bank		Other			Total
Three months ended September 30, 2019
Revenues from external customers	$	688,299	$	83,201	$	35		$	771,535
Intersegment revenues (eliminations)	31		—		(31		)	—
Revenues	$	688,330	$	83,201	$	4		$	771,535
Income (loss) before income taxes	$	58,099	$	29,157	$	(8,563	)	$	78,693
Income taxes (benefit)	10,822		6,269		(2,288		)	14,803
Net income (loss)	47,277		22,888		(6,275		)	63,890
Preferred stock dividends of subsidiaries	498		—		(27		)	471
Net income (loss) for common stock	$	46,779	$	22,888	$	(6,248	)	$	63,419
Nine months ended September 30, 2019
Revenues from external customers	$	1,900,552	$	247,940	$	143		$	2,148,635
Intersegment revenues (eliminations)	57		—		(57		)	—
Revenues	$	1,900,609	$	247,940	$	86		$	2,148,635
Income (loss) before income taxes	$	140,775	$	76,611	$	(27,960	)	$	189,426
Income taxes (benefit)	27,800		15,868		(7,278		)	36,390
Net income (loss)	112,975		60,743		(20,682		)	153,036
Preferred stock dividends of subsidiaries	1,496		—		(79		)	1,417
Net income (loss) for common stock	$	111,479	$	60,743	$	(20,603	)	$	151,619
Total assets (at September 30, 2019)	$	6,260,968	$	7,135,250	$	121,752		$	13,517,970
Three months ended September 30, 2018
Revenues from external customers	$	687,396	$	80,496	$	156		$	768,048
Intersegment revenues (eliminations)	13		—		(13		)	—
Revenues	$	687,409	$	80,496	$	143		$	768,048
Income (loss) before income taxes	$	57,354	$	26,831	$	(6,952	)	$	77,233
Income taxes (benefit)	7,144		5,610		(1,892		)	10,862
Net income (loss)	50,210		21,221		(5,060		)	66,371
Preferred stock dividends of subsidiaries	498		—		(27		)	471
Net income (loss) for common stock	$	49,712	$	21,221	$	(5,033	)	$	65,900
Nine months ended September 30, 2018
Revenues from external customers	$	1,865,922	$	233,019	$	258		$	2,099,199
Intersegment revenues (eliminations)	40		—		(40		)	—
Revenues	$	1,865,962	$	233,019	$	218		$	2,099,199
Income (loss) before income taxes	$	134,847	$	77,845	$	(22,601	)	$	190,091
Income taxes (benefit)	24,995		17,103		(5,625		)	36,473
Net income (loss)	109,852		60,742		(16,976		)	153,618
Preferred stock dividends of subsidiaries	1,496		—		(79		)	1,417
Net income (loss) for common stock	$	108,356	$	60,742	$	(16,897	)	$	152,201
Total assets (at December 31, 2018)	$	5,967,503	$	7,027,894	$	108,654		$	13,104,051

(in thousands) Electric utility Bank Other Total
Three months ended September 30, 2018

Revenues from external customers $ 687,396
$ 80,496
$ 156
$ 768,048
Intersegment revenues (eliminations) 13
—
(13 ) —
Revenues $ 687,409
$ 80,496
$ 143
$ 768,048
Income (loss) before income taxes $ 57,354
$ 26,831
$ (6,952 ) $ 77,233
Income taxes (benefit) 7,144
5,610
(1,892 ) 10,862
Net income (loss) 50,210
21,221
(5,060 ) 66,371
Preferred stock dividends of subsidiaries 498
—
(27 ) 471
Net income (loss) for common stock $ 49,712
$ 21,221
$ (5,033 ) $ 65,900
Nine months ended September 30, 2018

Revenues from external customers $ 1,865,922
$ 233,019
$ 258
$ 2,099,199
Intersegment revenues (eliminations) 40
—
(40 ) —
Revenues $ 1,865,962
$ 233,019
$ 218
$ 2,099,199
Income (loss) before income taxes $ 134,847
$ 77,845
$ (22,601 ) $ 190,091
Income taxes (benefit) 24,995
17,103
(5,625 ) 36,473
Net income (loss) 109,852
60,742
(16,976 ) 153,618
Preferred stock dividends of subsidiaries 1,496
—
(79 ) 1,417
Net income (loss) for common stock $ 108,356
$ 60,742
$ (16,897 ) $ 152,201
Total assets (at September 30, 2018) $ 5,882,127
$ 6,929,456
$ 99,971
$ 12,911,554
Three months ended September 30, 2017

Revenues from external customers $ 598,756
$ 74,289
$ 140
$ 673,185
Intersegment revenues (eliminations) 13
—
(13 ) —
Revenues $ 598,769
$ 74,289
$ 127
$ 673,185
Income (loss) before income taxes $ 74,990
$ 26,764
$ (6,615 ) $ 95,139
Income taxes (benefit) 27,005
9,172
(1,582 ) 34,595
Net income (loss) 47,985
17,592
(5,033 ) 60,544
Preferred stock dividends of subsidiaries 498
—
(27 ) 471
Net income (loss) for common stock $ 47,487
$ 17,592
$ (5,006 ) $ 60,073
Nine months ended September 30, 2017

Revenues from external customers $ 1,674,158
$ 222,474
$ 396
$ 1,897,028
Intersegment revenues (eliminations) 97
—
(97 ) —
Revenues $ 1,674,255
$ 222,474
$ 299
$ 1,897,028
Income (loss) before income taxes $ 150,715
$ 75,720
$ (20,088 ) $ 206,347
Income taxes (benefit) 54,623
25,582
(8,202 ) 72,003
Net income (loss) 96,092
50,138
(11,886 ) 134,344
Preferred stock dividends of subsidiaries 1,496
—
(79 ) 1,417
Net income (loss) for common stock $ 94,596
$ 50,138
$ (11,807 ) $ 132,927
Total assets (at December 31, 2017) $ 5,630,613
$ 6,798,659
$ 104,888
$ 12,534,160

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

~~Note 3~~ · ~~Electric utility segment~~

1512

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

~~Revenue taxes.~~ The Utilities’ revenues include amounts for recovery of various Hawaii state revenue taxes. Revenue taxes are generally recorded as an expense in the period the related revenues are recognized. For the third quarters of 2018 and 2017 and the nine months ended September 30, 2018 and 2017, the Utilities’ revenues include recovery of revenue taxes of approximately $61 million, $54 million, ~~$166 million~~ ~~and~~ ~~$150 million~~, respectively, which amounts are included in “Taxes, other than income taxes” expense, in the unaudited condensed consolidated statements of income. However, the Utilities pay revenue taxes to the taxing authorities in the period based on (1) the prior year’s billed revenues (in the case of public service company taxes and PUC fees) in the current year or (2) the current year’s cash collections from electric sales (in the case of franchise taxes) after year-end.Note 3 · Electric utility segment

HECO Capital Trust III. Trust III, a statutory trust, which was formed to effect the issuance of $50 million of cumulative quarterly income trust preferred securities in 2004 ~~has~~(2004 Trust Preferred Securities), and had at all times been ana wholly-owned unconsolidated subsidiary of Hawaiian ~~Electric. Trust III’s balance sheets as of September 30, 2018 and December 31, 2017 each consisted of $51.5 million of 2004 Debentures;~~Electric, redeemed $50 million of its outstanding 2004 Trust Preferred ~~Securities;~~Securities and $1.5 million of trust common ~~securities.~~securities on May 15, 2019. Subsequently, a Certificate of Cancellation of Statutory Trust was filed with the Delaware Secretary of State in order to cancel the Trust III, which became effective on June 10, 2019.

For the year-to-date period ending on the Trust’s cancellation date on June 10, 2019 and nine month ended September 30, 2018, Trust III’s income statements ~~for the nine months ended September 30, 2018 and 2017~~ consisted of $1.2 million and $2.5 million of interest income received from the 2004 Debentures; $1.2 million and $2.4 million of distributions to holders of the Trust Preferred Securities; $37,000 and $75,000 of common dividends on the trust common securities to Hawaiian ~~Electric.~~Electric, respectively.

Unconsolidated variable interest entities.

Power purchase agreements. As of September 30, ~~2018,~~2019, the Utilities had ~~five~~4 PPAs for firm capacity (excluding the PGV PPA as PGV has been offline since May 2018 due to lava flow on Hawaii Island) and other PPAs with independent power producers (IPPs) and Schedule Q providers (i.e., customers with cogeneration and/or power production facilities who buy power from or sell power to the Utilities), none of which isare currently required to be consolidated as VIEs.

Pursuant to the current accounting standards for VIEs, the Utilities are deemed to have a variable interest in Kalaeloa Partners, L.P. (Kalaeloa), AES Hawaii, Inc. (AES Hawaii) and ~~the predecessor of~~ Hamakua Energy by reason of the provisions of the PPA that the Utilities have with the ~~three~~3 IPPs. However, management has concluded that the Utilities are not the primary beneficiary of Kalaeloa, AES Hawaii and ~~the predecessor of~~ Hamakua Energy because the Utilities do not have the power to direct the activities that most significantly impact the ~~three~~3 IPPs’ economic performance nor the obligation to absorb their expected losses, if any, that could potentially be significant to the IPPs. Thus, the Utilities have not consolidated Kalaeloa, AES Hawaii and ~~the predecessor of~~ Hamakua Energy in its ~~unaudited~~ condensed consolidated financial statements. ~~In November 2017, HEI acquired the Hamakua project through~~ Hamakua Energy is an indirect subsidiary of Pacific Current and ~~has~~is consolidated it in HEI’s ~~unaudited~~ condensed consolidated financial ~~statements since the acquisition.~~statements.

For the other PPAs with IPPs, the Utilities have concluded that the consolidation of the IPPs was not required because either the Utilities do not have variable interests in the IPPs due to the absence of an obligation in the PPAs for the Utilities to absorb any variability of the IPPs, or the ~~IPPs were~~IPP was considered a “governmental organization,” and thus excluded from the scope of accounting standards for VIEs. ~~Two~~NaN IPPs of as-available energy declined to provide the information necessary for Utilities to determine the applicability of accounting standards for VIEs. If information is ultimately received from the IPPs, a possible outcome of future analyses of such information is the consolidation of ~~one~~1 or both of such IPPs in the unaudited condensed consolidated financial statements. The consolidation of any significant IPP could have a material effect on the unaudited condensed consolidated financial statements, including the recognition of a significant amount of assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, the Utilities would retrospectively apply accounting standards for VIEs to the IPP.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Commitments and contingencies.

~~Contingencies~~Fuel contracts. The fuel contract entered into in January 2019, by the Utilities and PAR Hawaii Refining, LLC, for the Utilities' low sulfur fuel oil, high sulfur fuel oil, No. 2 diesel, and ultra-low sulfur diesel requirements was approved by the PUC, and became effective on April 28, 2019 and terminates on December 31, 2022. The existing fuel contracts with Island Energy Services, LLC (IES), terminated on April 27, 2019, as agreed with IES under a mutual termination and release agreement entered into in November 2018.

Contingencies. The Utilities are subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, the Utilities cannot rule out the possibility that such outcomes could have a material effect on the results of operations or liquidity for a particular reporting period in the future.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Power purchase agreements. Purchases from all IPPs were as follows:


	Three months ended September 30				Nine months ended September 30				Three months ended September 30				Nine months ended September 30
(in millions)	2018		2017		2018		2017		2019		2018		2019		2018
Kalaeloa	$	62	$	48	$	154	$	136	$	58	$	62	$	159	$	154
AES Hawaii	38		39		107		103		38		38		102		107
HPOWER	19		18		51		51		20		19		57		51
Puna Geothermal Venture	—		10		15		28		—		—		—		15
Hamakua Energy	17		8		39		25		17		17		51		39
Wind IPPs									30		31		73		84
Solar IPPs									11		8		26		22
Other IPPs ¹	41		38		112		98		2		2		4		6
Total IPPs	$	177	$	161	$	478	$	441	$	176	$	177	$	472	$	478


¹	Includes ~~wind~~hydro power ~~solar power, feed-in tariff projects~~ and other ~~PPAs.~~PPAs

Kalaeloa Partners, L.P. Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa. Hawaiian Electric and Kalaeloa are currently in negotiations to address the PPA term that ended on May 23, 2016. The PPA automatically extends on a month-to-month basis as long as the parties are still negotiating in good ~~faith, but would end 60 days after either party notifies the other in writing that negotiations have terminated.~~faith. Hawaiian Electric and Kalaeloa have agreed that neither party will terminate the PPA (which has been subject to automatic extension on a month-to-month basis) prior to ~~October~~July 31, ~~2019. This agreement contemplates continued negotiations between the parties and accounts~~2020, to allow for ~~time needed for PUC approval of~~ a negotiated ~~resolution.~~resolution and PUC approval.

AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amendment No. 2) for a period of 30 years ~~beginning~~ending September ~~1992,~~2022, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. In August 2012, Hawaiian Electric filed an application with the PUC seeking an exemption from the PUC’s Competitive Bidding Framework to negotiate an amendment to the PPA to purchase 186 MW of firm capacity, and amend the energy pricing formula in the PPA. The PUC approved the exemption in April 2013, but Hawaiian Electric and AES Hawaii ~~were not able to reach agreement on the amendment. In June 2015, AES Hawaii filed~~have been in dispute over an ~~arbitration demand regarding a dispute about whether Hawaiian Electric was obligated to buy up to~~additional 9 MW of additional capacity based on a 1992 letter. Hawaiian Electric responded to the arbitration demand and in October 2015, AES Hawaii and Hawaiian Electric entered into a settlement agreement to stay the arbitration proceeding. The settlement agreement included certain conditions precedent which, if satisfied, would have released the parties from the claims under the arbitration proceeding. Among the conditions precedent was the successful negotiation and PUC approval of an amendment to the existing PPA.

In November 2015, Hawaiian Electric entered into Amendment No. 3 for which PUC approval was requested and subsequently denied in January 2017. Approval of Amendment No. 3 would have satisfied the final condition for effectiveness of the settlement agreement and resolved AES Hawaii's claims. Following the PUC's decision, the parties agreed to extend the stay of the arbitration proceeding, while settlement discussions continued.capacity. In February 2018, Hawaiian Electric reached agreement with AES Hawaii on ~~Amendment No. 4, which was submitted~~an amendment to the ~~PUC for approval~~PPA. However, in April 2018. Amendment No. 4, among other things, provides (1) that AES Hawaii will make certain operational commitments to improve reliability, (2) for inclusion of AES Hawaii in the Utilities’ greenhouse gas partnership, (3) provisions to allow AES Hawaii to reduce coal combustion by modifying its fuel consumption to include biomass upon approval by Hawaiian Electric, and (4) for release of an option agreement by Hawaiian Electric for land owned by AES Hawaii. Amendment No. 4 includes a stay of the arbitration proceeding pending review by the PUC. If approved by the PUC, Amendment No. 4 will resolve AES Hawaii’s claims. In June 2018, the PUC issued an order suspending review of the ~~Amendment No. 4 docket~~amendment pending a ~~DOH~~Department of Health of the State of Hawaii (DOH) decision on ~~AES’~~AES Hawaii’s request for approval of its Emission Reduction Plan and partnership with Hawaiian Electric. If approved by the PUC, the amendment will resolve AES Hawaii’s claims related to the additional capacity.

Hu Honua Bioenergy, ~~LLC.~~ LLC (Hu Honua). In May 2012, Hawaii Electric Light signed a PPA, which the PUC approved in December 2013, with Hu Honua ~~Bioenergy, LLC (Hu Honua)~~ for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass from a facility on the island of Hawaii. Under the terms of the PPA, the Hu Honua plant was scheduled to be in service in 2016. However, Hu Honua encountered construction and litigation delays, failed to meet its obligations under the PPA and failed to provide adequate assurances that it could perform or had the financial means to perform. Hawaii Electric Light terminated the PPA on March 1, 2016. On November 30, 2016, Hu Honua filed a civil complaintwhich resulted in ~~the United States District Court for the District of Hawaii that included claims purportedly arising out of the termination of Hu Honua’s PPA. On May 26, 2017,~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Hawaii Electric Light and Hu Honua entered into a settlement agreement that will settle all claims related to the termination of the original PPA. The settlement agreement was contingent on the PUC’s approval of an amended and restated PPA between Hawaii Electric Light and Hu Honua dated May 5, 2017. In July 2017, the PUC approved the amended and restated ~~PPA. On~~PPA, which becomes effective once the PUC’s order is final and non-appealable. In August ~~25,~~ 2017, the PUC’s approval was appealed by a third party. ~~The appeal~~On May 10, 2019, the Hawaii Supreme Court issued a decision remanding the matter to the PUC for further proceedings consistent with the court’s decision which must include express consideration of Green House Gas emissions that would result from approving the PPA, whether the cost of energy under the PPA is ~~still pending.~~reasonable in light of the potential for GHG emissions, and whether the terms of the PPA are prudent and in the public interest, in light of its potential hidden and long-term consequences. On June 20, 2019, the PUC issued an order reopening the docket for further proceedings. On September 29, 2019, the PUC issued an order setting the procedural schedule for the matter. Pre-hearing matters will be conducted through February 3, 2020. Thereafter, the PUC will set the date for an evidentiary hearing and post-hearing briefing. Hu Honua ~~is expected~~expects to ~~be on-line by~~complete construction of the ~~end~~plant in the fourth quarter of ~~2018.~~2019.

Utility projects. Many public utility projects require PUC approval and various permits from other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits can result in significantly increased project costs or even cancellation of projects. In the event a project does not proceed, or if it becomes probable the PUC will disallow cost recovery for all or part of a project, or if PUC-imposed caps on project costs are expected to be exceeded, project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income.

Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) implementation project. On August 11, 2016, the PUC approved the Utilities’ request to commence the ERP/EAM implementation project, subject to certain conditions, including a $77.6 million cap on cost recovery as well as a requirement that the Utilities pass onto customers a minimum of $244 million in benefits associated with the system over its 12-year service life. The D&O approved the deferral of certain project costs and allowed the accrual of allowance for funds used during construction (AFUDC), but limited the AFUDC rate to 1.75%. Pursuant to the D&O and subsequent orders, in 2017 and 2018, the Utilities filed project justification, status and cost reports; bottom-up, low-level analyses of the project’s benefits; and proposed performance metrics and tracking mechanism for passing the project’s benefits on to customers.

Over the past years, the Utilities collaborated with the Consumer Advocate to reach substantive agreement regarding the approach for delivering the $244 million in system benefits to customers. On September 17, 2018, Utilities provided the Consumer Advocate with their final drafts of the rate case-centric benefit delivery mechanism and ERP/EAM annual enterprise systems benefits report for its review. The parties will file these documents with the PUC upon final agreement.

~~Monthly reports on the status and costs of the project continue to be filed.~~ The ERP/EAM Implementation Project went live in October 2018. In the Hawaiian Electric 2017 rate case, a settlement agreement approved by the PUC included authorization for the deferred project costs to accrue a return at 1.75% after the project ~~goes~~went into service and until the deferred project costs are included in rate base, and for amortization of the deferred costs to not begin until the amortization expense is incorporated in rates and the unamortized deferred project costs are included in rate base. As of September 30, ~~2018,~~2019, the ~~Project incurred costs of $73.3 million of which $12.9 million were charged to other operation and maintenance (O&M) expense, $2.6 million relate to capital~~total deferred project costs and ~~$57.8 million are deferred costs.~~

~~Schofield Generating Station Project.~~ ~~In June 2018, Hawaiian Electric placed~~accrued carrying costs after the project went into service amounted to $59.1 million.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

In February 2019, the PUC approved a ~~50 MW utility owned and operated firm, renewable and dispatchable generation facility at Schofield Barracks. The project is located on land leased from~~methodology for passing the ~~U.S. Army under a 35-year lease. PUC orders resulted in a project~~future cost ~~cap of $157.3 million of which capital costs up to $141.6 million (90%~~saving benefits of the ~~cost cap) are recoverable through the Major Project Interim Recovery (MPIR) adjustment mechanism. Recovery of capital costs under the MPIR adjustment mechanism was approved~~new ERP/EAM system to customers developed by the ~~PUC~~Utilities in collaboration with the Consumer Advocate. The Utilities filed a benefits clarification document on June ~~27, 2018. (See “Decoupling” section below for MPIR guidelines~~10, 2019, reflecting $150 million in future net O&M expense reductions and cost avoidance, and $96 million in capital cost ~~recovery discussion.) A decision on recovery of related incremental operation~~reductions and ~~maintenance~~tax savings over the 12-year service life. To the extent the reduction in O&M expense ~~(approximately $1.8 million annualized) during~~relates to amounts reflected in electric rates, the ~~interim period (i.e., between the in-service date and the next rate case) is pending. Project costs incurred as~~Utilities would reduce future rates for such amounts. As of September 30, ~~2018 amounted to $142.5 million. Cost recovery~~2019, the Utilities recorded a total of ~~capital costs in excess of $141.6~~$1.4 million isas a regulatory liability for amounts to be ~~addressed~~returned to customers for reduction in O&M expense included in rates.

On September 13, 2019, the ~~next general rate case.~~Utilities filed their Semi-Annual Enterprise System Benefits Report for the period January 1 through June 30, 2019. In October 2019, the PUC approved the Utilities and the Consumer Advocate’s Stipulated Performance Metrics and Tracking Mechanism.

West Loch PV Project. In ~~July 2016,~~June 2017, the PUC approved the expenditure of funds for Hawaiian Electric ~~announced plans~~ to build, own and operate a utility-owned, grid-tied 20-MW (ac) solar facility on property owned by the Department of the ~~Navy. In June 2017, the PUC approved the expenditure of funds for the project,~~Navy, including ~~Hawaiian Electric’s~~a proposed project cost cap of $67 million and a performance guarantee to provide energy at 9.56 cents/~~KWH~~kWh or less to the system.

In approving the project, the PUC agreed that the project is eligible for recovery of costs offset by related net benefits under the newly-established ~~MPIR~~major project interim recovery (MPIR) adjustment mechanism. (See “Decoupling” section below for MPIR guidelines and ~~capital~~ cost recovery discussion.) Hawaiian Electric has provided supplemental materials, as requested by the PUC, to support meeting the MPIR guidelines, accompanied by system performance guarantee and cost savings sharing mechanisms. A decision on these matters is pending.

Hawaiian Electric executed a fixed-price Engineering, Procurement, and Construction (EPC) contract for the project on December 6, 2017. The EPC contract includes the cost of the solar panels for the project, which is not subject to modification due to any tariffs that may be imposed under the current photovoltaic (PV) cell and module import tariffs. Construction of the facility began in the second quarter of 2018, and the facility is expected to be placed in service in ~~the second quarter of~~November 2019. Project costs incurred as of September 30, ~~2018~~2019 amounted to ~~$28.6~~$49.3 million.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

~~Hawaiian Telcom~~. The Utilities each had separate agreements for the joint ownership and maintenance of utility poles with Hawaiian Telcom, Inc. (Hawaiian Telcom), the respective county or counties in which each utility operates and other third parties, such as the State of Hawaii. The agreements set forth various circumstances requiring pole removal/installation/replacement and the sharing of costs among the joint pole owners. The agreements allowed for the cost of work done by one joint pole owner to be shared by the other joint pole owners based on the apportionment of costs in the agreements. The Utilities maintained, replaced and installed the majority of the jointly-owned poles in each of the respective service territories, and billed the other joint pole owners for their respective share of the costs. The counties and the State had been reimbursing the Utilities for their share of the costs. However, Hawaiian Telcom had been delinquent in reimbursing the Utilities for its share of the costs.

Hawaiian Telcom’s delinquency will be resolved by new agreements with Hawaiian Telcom approved by the PUC in October 2018. These new agreements provide for the purchase by the Utilities of Hawaiian Telcom’s interest in all the joint poles, and licensing and operating agreements between the Utilities and Hawaiian Telcom subsequent to the transfer of the joint pole interest to the Utilities. The Utilities’ consideration of approximately $48 million for acquiring Hawaiian Telcom’s interest in the poles will be offset in part by the receivables owed by Hawaiian Telcom to the Utilities. As of September 30, 2018, receivables from Hawaiian Telcom under the joint pole agreement, net of a reserve for a portion of the interest, were $17.4 million ($11.6 million at Hawaiian Electric, $4.7 million at Hawaii Electric Light, and $1.1 million at Maui Electric). The remaining consideration for acquiring Hawaiian Telcom’s interest in the joint poles will be settled through the set-off of current and future license fees due from Hawaiian Telcom, after which Hawaiian Telcom would make cash payments for license fees under the agreement.

Environmental regulation. The Utilities are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances.

Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other chemical releases associated with current or previous operations. The Utilities report and take action on these releases when and as required by applicable law and regulations. The Utilities believe the costs of responding to such releases identified to date will not have a material effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity.

Former Molokai Electric Company generation site. In 1989, Maui Electric acquired by merger Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. ~~Although Maui Electric never operated at the Site or owned the Site property, after discussions~~In cooperation with ~~the EPA and~~ the Hawaii Department of Health (DOH), Maui Electric agreed to undertake additional investigations at the Site and an adjacent parcel that Molokai Electric Company had used for equipment storage (the Adjacent Parcel) to determine the extent of environmental contamination. A 2011 assessment by a Maui Electric contractor of the Adjacent Parcel identified environmental impacts, including elevated polychlorinated biphenyls (PCBs) in the subsurface soils. In cooperation with the DOH and EPA, Maui Electric is further ~~investigating~~investigated the Site and the Adjacent Parcel to determine the extent of impacts of ~~PCBs,~~polychlorinated biphenyls (PCBs), residual fuel oils and other subsurface contaminants. Maui Electric has a reserve balance of $2.7 million as of September 30, ~~2018,~~2019, representing the probable and reasonably estimable cost ~~to complete the additional investigation and estimated cleanup costs at~~for remediation of the Site and the Adjacent Parcel; however, final costs of remediation will depend on ~~the results of continued investigation.~~cleanup approach implemented.

Pearl Harbor sediment study. In July 2014, the U.S. Navy notified Hawaiian Electric of the Navy’s determination that Hawaiian Electric is a Potentially Responsible Party responsible for the costs of investigation and cleanup of PCB contamination in sediment in the area offshore of the Waiau Power Plant as part of the Pearl Harbor Superfund Site. ~~The Navy has also requested that~~ Hawaiian Electric ~~reimburse the costs incurred~~was also required by the Navy to investigate the area. The Navy has completed a remedial investigation and a feasibility study (FS) for the remediation of contaminated sediment at several locations in Pearl Harbor and issued its Final FS Report on June 29, 2015. On February 2, 2016, the Navy released the Proposed Plan for Pearl Harbor Sediment Remediation and Hawaiian Electric submitted comments. The extent of the contamination, the appropriate remedial measures to address it and Hawaiian Electric’s potential responsibility for any associated costs have not been determined.

~~On March 23, 2015, Hawaiian Electric received a letter from the~~ EPA ~~requesting that Hawaiian Electric submit a work plan~~ to assess potential sources and extent of PCB contamination onshore at ~~the~~ Waiau Power Plant. Hawaiian Electric submitted a sampling and analysis (SAP) work plan to the EPA and the DOH. Onshore sampling at the Waiau Power Plant was completed in two phases in December 2015 and June 2016. Appropriate remedial measures are being developed to address the extent of the onshore contamination, and any associated costs have not yet been determined.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

As of September 30, ~~2018,~~2019, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was ~~$4.6~~$4.4 million. The reserve balance represents the probable and reasonably estimable cost ~~to complete~~for the onshore ~~and offshore investigations~~investigation and the remediation of PCB contamination in the offshore sediment. The final remediation costs will depend on the ~~assessment of~~ potential onshore source control requirements ~~as well as the further investigation of contaminated sediment~~and actual offshore ~~from the Waiau Power Plant by the Navy.~~cleanup costs.

Regulatory proceedings

Decoupling.Decoupling is a regulatory model that is intended to provide the Utilities with financial stability and facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. The decoupling ~~model, implemented in Hawaii in 2011, delinks revenues from sales and includes annual rate adjustments. The decoupling~~ mechanism has the following major components: (1) ~~a sales decoupling component via a~~monthly revenue balancing account (RBA), revenues or refunds for the difference between PUC-approved target revenues and recorded adjusted revenues, which delinks revenues from kilowatthour sales, (2) ~~a revenue~~RAM revenues for escalation ~~component via a~~in certain O&M expenses and rate ~~adjustment mechanism (RAM),~~ base changes,

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

(3) ~~major project interim recovery~~MPIR component, ~~(MPIR),~~ (4) performance incentive mechanisms (PIMs), and (5) an earnings sharing mechanism, which would provide for a reduction of revenues between rate cases in the event the utility exceeds the return on average common equity (ROACE) allowed in its most recent rate case. Under the decoupling mechanism, triennial general rate cases are required.

Rate adjustment mechanism. The RAM is based on the lesser of: a) an inflationary adjustment for certain O&M expenses and return on investment for certain rate base changes, or b) cumulative annual compounded increase in Gross Domestic Product Price Index applied to annualized target revenues (the RAM Cap). Annualized target revenues reset upon the issuance of an interim or final ~~D&O~~decision and order (D&O) in a rate case.

~~The RAM Cap impacted~~ Each of the ~~Utilities' recovery of capital investments as follows:~~

~~Hawaiian Electric's~~Utilities’ RAM revenues ~~were limited to the~~was below its respective RAM Cap in 2019. The 2019 RAM also incorporated additional amortization of the regulatory liability associated with certain excess deferred taxes resulting from the 2017 Tax Cuts and ~~2018.~~

~~Maui Electric's~~Jobs Act decrease in tax rates. The reduction in the RAM revenues ~~in 2017~~will be counterbalanced by the lower income tax expense and, ~~2018 were below the RAM Cap.~~therefore, will have no net income impact.

~~Hawaii Electric Light’s RAM revenues in 2017 and 2018 were below the RAM Cap.~~

For the RAM years 2014 - 2016, Hawaiian Electric was allowed to record RAM revenue beginning on January 1 and to bill such amounts from June 1 of the applicable year through May 31 of the following year. Subsequent to 2016, Hawaiian Electric reverted to the RAM provisions initially approved in March 2011—i.e., RAM is both accrued and billed from June 1 of each year through May 31 of the following year.

Major project interim recovery. On April 27, 2017, the PUC issued an order that provided guidelines for interim recovery of revenues to support major projects placed in service between general rate cases.

Projects eligible for recovery through the MPIR adjustment mechanism are major projects (i.e., projects with capital expenditures net of customer contributions in excess of $2.5 million), including, but not restricted to, renewable energy, energy efficiency, utility scale generation, grid modernization and smaller qualifying projects grouped into programs for review. The MPIR adjustment mechanism provides the opportunity to recover revenues for approved costs of eligible projects placed in service between general rate cases wherein cost recovery is limited by a revenue cap and is not provided by other effective recovery mechanisms. The request for PUC approval must include a business case and all costs that are allowed to be recovered through the MPIR adjustment mechanism must be offset by any related benefits. The guidelines provide for accrual of revenues approved for recovery upon in-service date to be collected from customers through the annual RBA tariff. Capital projects that are not recovered through the MPIR would be included in the RAM and be subject to the RAM Cap, until the next rate case when the Utilities would request recovery in base rates.

The PUC ~~has~~ approved recovery of capital costs under the MPIR for Schofield ~~generation station,~~Generating Station, which ~~would adjust~~increased revenues in ~~July through December~~ 2018 by ~~$3.4~~$3.6 million and beare being collected in customer bills beginning in June 2019. ~~A decision on recovery of related incremental O&M expenses is pending.~~ In February 2019, Hawaiian Electric ~~will file~~submitted an MPIR filing of $19.8 million for 2019 (which ~~will accrue~~accrued effective January 1, 2019) ~~which will include~~that included the 2019 return on project amount (up to the capped amount) in rate base, depreciation and incremental O&M expenses, ~~(if approved for recovery by the PUC),~~ for collection from June 2020 through May 2021. The PUC has also indicated that it intends to approve MPIR for the West Loch PV Project.

Performance incentive mechanisms. The PUC has ~~ordered~~established the following PIMs:

Service Quality performance ~~incentive mechanisms (PIM), which will be reflected in the annual decoupling filing beginning in 2019.~~incentives are measured on a calendar-year basis. The PIM tariff requires the performance targets, deadbands and the amount of maximum financial incentives used to determine the PIM financial incentive levels for each of the PIMs to be re-determined upon issuance of an interim or final order in a general rate case for each utility.

~~Service Quality performance incentives are measured on a calendar-year basis beginning in 2018.~~

Service Reliability Performance measured by System Average Interruption Duration and Frequency Indexes (penalties only). Target performance is based on each utility’s historical 10-year average performance with a

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

deadband of one standard deviation. The maximum penalty for each performance index is 20 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately $6.7 million - for both indices in total for the three utilities).

Call Center Performance measured by the percentage of calls answered within 30 seconds. Target performance is based on the annual average performance for each utility for the most recent 8 quarters with a deadband of 3% above and below the target. The maximum penalty or incentive is 8 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties or incentives of approximately $1.3 million - in total for the three utilities).

~~Demand Response measured by~~In 2018, the ~~demand response resources acquired~~Utilities accrued $2.1 million in estimated penalties for service reliability net of call center performance incentives for 2018. As a result of a PUC order denying the exclusion of the impact of a specific project on the service reliability performance, in May 2019, Hawaiian Electric accrued an additional $1.3 million in service reliability penalties related to 2018. The ~~award is up~~net service quality performance penalties related to 5%2018 were reflected in the 2019 annual decoupling filing and will reduce customer rates in the period June 1, 2019 through May 31, 2020.

In May 2019, the Utilities filed an application for approval to, among other things, modify the measurement of performance for the System Average Interruption Duration and Frequency Indexes, adjust the PIM targets, deadbands, and financial incentive levels for each of the ~~aggregate~~PIMs upon issuance of a final order in a general rate case, and adjust the call center performance PIM level for Hawaii Electric Light.

•

Procurement of low-cost variable renewable resources through the request for proposal process in 2018 is measured by comparison of the procurement price to target prices. The incentive is a percentage of the savings determined by comparing procured price to a target of 11.5 cents per kilowatt-hour for renewable projects with storage capability and 9.5 cents per kilowatt-hour for energy-only renewable projects. For PPAs filed by December 31, 2018 and subsequently approved by the PUC, the incentive is 20% of the savings, with a cap of $3.5 million for the three utilities in total. For PPAs filed in January, February, and March 2019 and subsequently approved by the PUC, scaled incentives are 15%, 10% and 5%, respectively, of the savings for PPAs, with a cap of $3 million for the three utilities in total. There are 0 penalties. On March 25, 2019, the PUC approved 6 contracts, which were filed by December 31, 2018 and qualified for incentives. A seventh contract, which was filed in February 2019 and approved in August 2019, also qualified for incentives. Half of the incentive is earned upon PUC approval of the contract and the other half is eligible to be earned in the year following the in-service date of the projects. The Utilities accrued $1.7 million

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

in incentives in March 2019, which were reflected in the 2019 annual ~~contract value for cost-effective demand response capability contracted with aggregators by December~~decoupling filing and will be recovered in rates in the period June 1, 2019 through May 31, ~~2018. The maximum award is $0.5 million~~2020.

On October 9, 2019, the PUC issued an order establishing PIMs for the ~~three utilities in total~~Utilities with regards to the Variable Renewable Dispatchable Generation and ~~there are no~~Energy Storage requests for proposals (RFPs) as well as the Delivery of Grid Services via Customer-sited Distributed Energy Resources RFPs, that were issued on August 22, 2019 for Oahu, Maui and Hawaii island. The order establishes pricing thresholds, timelines to complete contracting, and other performance criteria for the performance incentive eligibility. The PIMs provide incentives only without penalties. ~~This incentive applies to one-time performance in 2018 only.~~

~~Procurement of low-cost variable renewable resources through~~The earliest the ~~request~~Utilities would be eligible for ~~proposal process in 2018 measured by comparison of the procurement price to target prices. The incentive is~~ a percentage of the savings determined by comparing procured price to a target of 11.5 cents per kilowatt-hour for renewable projects with storage capability and 9.5 cents per kilowatt-hour for energy-only renewable projects. There are two phasesPIM pursuant to this ~~incentive.~~order is upon PUC approval of executed contracts resulting from the Phase ~~1 has an incentive of 20% of~~2 RFPs. The order requires contracts under the ~~savings~~Grid Service RFP be filed for ~~purchased power agreements~~approval by May 2020, and by September 2020 under the Renewable RFPs. There is no set time period for approval. The Utilities filed ~~by December 31, 2018~~a motion for reconsideration and/or clarification regarding the order on October 21, 2019, relating to certain design aspects and ~~subsequently approved by the PUC, with a cap of $3.5 million~~eligibility criteria for the three utilities in total. Phase 2 has scaled incentives of 15%, 10% and 5% of the savings for purchased power agreements filed in January, February and March 2019, respectively, and subsequently approved by the PUC, with a cap of $3 million for the three utilities in total. There are no penalties.PIMs.

Annual decoupling filings. The net annual incremental amounts approved to be collected (refunded) from June 1, ~~2018~~2019 through May 31, ~~2019~~2020 are as follows:

(in millions) Hawaiian Electric Hawaii Electric Light Maui Electric
2018 Annual incremental RAM adjusted revenues *
$ 13.8
$ 3.4
$ 2.0
Annual change in accrued RBA balance as of December 31, 2017 (and associated revenue taxes) $ 6.6
$ 0.7
$ 3.2
2017 Tax Act Adjustment **
$ —
$ —
$ (2.8 )
Net annual incremental amount to be collected under the tariffs $ 20.4
$ 4.1
$ 2.4



(in millions)	Hawaiian Electric			Hawaii Electric Light			Maui Electric			Total
2019 Annual incremental RAM adjusted revenues, net of changes in Tax Act adjustment*	$	6.5		$	1.1		$	5.4		$	13.0
Annual change in accrued RBA balance as of December 31, 2018 (and associated revenue taxes) which incorporates MPIR recovery	(12.2		)	(2.0		)	0.8			(13.4		)
Performance Incentive Mechanisms (net)	(1.3		)	—			(0.4		)	(1.7		)
Net annual incremental amount to be collected (refunded) under the tariffs	$	(7.0	)	$	(0.9	)	$	5.8		$	(2.1	)

* The 2018 annual RAM adjusted revenues for Maui Electric terminated on August 23, 2018, the effective date of interim increase tariff rates that were implemented pursuant to the Interim D&O issued in the Maui Electric consolidated 2015 and 2018 rate case.

** Maui Electric incorporated a $2.8 million adjustment into its 2018 annual decoupling filing to incorporate the impact of the lower corporate income tax rate and the exclusion of the domestic production activities deduction, as a result of the 2017 Tax Cuts and Jobs Act (the Tax Act). had two incremental impacts in 2019. First, the 2019 RAM calculation for all of the Utilities incorporated additional amortization of the regulatory liability associated with certain deferred taxes. Secondly, Maui Electric incorporated a $2.8 million adjustment in its 2018 annual decoupling filing related to the Tax ~~adjustments for Hawaiian Electric and Hawaii Electric Light are described~~Act which is not recurring in ~~the discussion below of their respective on-going rate cases.~~2019.

Performance-based regulation proceeding. On April 18, 2018, the PUC issued an order, instituting a proceeding to investigate performance-based regulation (PBR). ~~The PUC intends to provide a forum to collaboratively develop modifications or new components to better align utility and customer interests.~~ The PUC stated that PBR seeks to utilize both revenue adjustment mechanisms and performance mechanisms to more strongly align utilities’ incentives with customer interests.

The order stated that, in general, the PUC is interested in ratemaking elements and/or mechanisms that result in:

Greater cost control and reduced rate volatility;

Efficient investment and allocation of resources regardless of classification as capital or operating expense;

Fair distribution of risks between utilities and customers; and

Fulfillment of State policy goals.

Through this investigation, the PUC intends to: (1) identify specific areas of utility performance that should be improved; (2) determine appropriate metrics for measuring successful outcomes in those areas; and (3) establish reasonable financial rewards and/or penalties that are sufficient to incent the utility to achieve those outcomes.

The proceeding has two phases. Phase 1 ~~examines~~examined the current regulatory framework and ~~identifies~~identified those areas of utility performance that are deserving of further focus in Phase 2. ~~The~~In May 2019, the PUC provided staff reports to the parties, held technical workshops and the parties filed briefs on: 1) goals and outcomes and 2) assessment of the existing regulatory framework. Metrics will be discussed in late 2018, to be followed by a PUC staff proposal, parties’ statements of position, and a PUCissued an order ~~related to~~concluding Phase 1, which ~~is expected after March 2019.~~established guiding principles, regulatory goals, and priority outcomes to guide the development of the PBR mechanisms in Phase 22. The PUC identified the following guiding principles, which will ~~address design~~inform the development of the PBR framework: 1) a customer-centric approach, 2) administrative efficiency to reduce regulatory burdens; and ~~implementation~~3) utility financial integrity to maintain the utility’s financial health. Priority goals (and priority outcomes) identified by the PUC were: enhance customer experience (affordability, reliability, interconnection experience, and customer engagement), improve utility performance (cost control, distributed energy resources (DER) asset effectiveness, and grid investment efficiency), and advance societal outcomes (capital formation, customer equity, greenhouse gas reduction, electrification of transportation, and resilience).

The order also outlined the PUC’s vision of a comprehensive PBR framework that would be further developed in Phase 2. The framework envisioned would include 1) a five-year multi-year rate plan with an index-driven annual revenue adjustment based on an inflation factor, an X-factor which would encompass productivity, a Z-factor to account for exceptional circumstances not in the utility’s control and a customer dividend, 2) a symmetric earnings sharing mechanism that would help ensure that utility earnings do not excessively benefit or suffer from external factors outside of utility control or unforeseen results of regulatory mechanisms, 3) off-ramp provisions, 4) continuation of the RBA, MPIR adjustment mechanism, the pension and OPEB tracking mechanism, and other recovery mechanisms, and 5) a portfolio of performance incentive mechanisms ~~revenue adjustment~~for customer engagement and DER asset effectiveness (rewards only), and interconnection experience (both rewards and penalties), in addition to scorecards to track progress against targeted performance levels, shared savings mechanisms to apportion savings to the utility and ~~other regulatory reforms.~~ customers, and reported metrics.

2117

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

~~Performance-based ratemaking legislation.~~ ~~On April 24, 2018, Senate Bill No. 2939 SD2 was signed into law, which establishes performance metrics that~~The Phase 2 schedule includes working group meetings through the ~~PUC shall consider while establishing performance incentives~~first half of 2020, followed by statements of positions, evidentiary hearing in October 2020 and ~~penalty mechanisms under a performance-based ratemaking model. The law requires that the PUC establish these performance-based ratemaking mechanisms on or before January 1,~~anticipated decision in December 2020. ~~The PUC opened a proceeding on April 18, 2018. See “Performance-based regulation proceeding” above.~~

Most recent rate proceedings.

Hawaiian Electric ~~consolidated 2014 and 2017~~2020 test year rate ~~cases~~case. ~~In June 2014, Hawaiian Electric submitted its 2014 test year rate case filing, stating that it intended to forgo the opportunity to seek a general rate increase in base rates. In December 2016,~~ On August 21, 2019, Hawaiian Electric filed an application ~~with the PUC~~ for a general rate increase ~~and~~for its 2020 test year rate case, requesting an increase of $77.6 million over revenues at current effective rates (for a 4.1% increase in revenues), based on an 8% rate of return (which incorporates a ROACE of 10.5%). In September 2019, the PUC issued an order ~~consolidating the~~ruling that Hawaiian Electric filings for the 2014 and 2017 test year rate cases. On February 16, 2018, Hawaiian Electric implemented an interim increase of $36.0 million. On April 13, 2018, Hawaiian Electric implemented an additional interim rate adjustment to adjust rates for the impactElectric’s application was complete as of the ~~Tax Act.~~

~~On June 22, 2018,~~date of filing. It also ordered that an outside consultant, selected by the PUC, ~~issued its Final D&O, approving final rate relief~~would independently conduct a management audit of ~~a $37.7 million increase before the Tax Act impact reduction of $38.3 million, based on an ROACE of 9.5% and an overall rate of return of 7.57%.~~Hawaiian Electric. The PUC ~~indicated that~~expects the ~~ECRC mechanism shall reflect a 98/2% risk-sharing split between ratepayers and Hawaiian Electric, with an annual maximum exposure cap of $2.5 million.~~audit to conclude in May 2020.

Maui Electric consolidated 2015 and 2018 test year rate cases. In December 2014, Maui Electric submitted its 2015 test year rate case filing, proposing no change to its base rates. In August 2017, the PUC issued an order consolidating the Maui Electric filings for the 2015 and 2018 test year rate cases. In October 2017, Maui Electric filed its 2018 test year rate case application and in February 2018, Maui Electric filed revised schedules to reflect the adjustments resulting from the Tax Act.

On August 9, 2018, the PUC approved an interim rate increase based on a stipulated settlement, that included the effects of the 2017 Tax Act, between Maui Electric and the Consumer ~~Advocate~~Advocate. On March 18, 2019, the PUC issued its D&O that approved, with certain modifications, the stipulated settlement, which addressed all issues in the rate case.

Revised tariffs reflecting a final increase of ~~$12.5~~$12.2 million over revenues at current effective rates based on the approved 7.43% rate of return (which incorporates a ROACE of 9.5% and a capital structure that includes a 57% common equity capitalization) on a ~~$462~~$454 million rate base ~~with the depreciation rates approved in July 2018. Interim rates were~~became effective on ~~August 23, 2018.~~June 1, 2019. Maui Electric’s ECRC tariff, resulting in the recovery of all fuel and purchased energy through the ECRC and the removal of the recovery of these costs from base rates, became effective on September 1, 2019. The ECRC reflects a 98%/2% fossil fuel generation cost risk-sharing split between ratepayers and Maui Electric, with an annual maximum increase or decrease to revenues to $0.6 million for the utility.

Hawaii Electric Light ~~2016 and~~ 2019 test year rate ~~cases~~case. ~~In September 2016,~~On December 14, 2018, Hawaii Electric Light filed an application ~~with the PUC~~ for a general rate ~~increase.~~

~~In August 2017, the PUC issued~~increase for its 2019 test year rate case, requesting an ~~order granting an interim rate~~ increase of ~~$9.9~~$13.4 million over revenues at current effective rates (for a 3.4% increase in revenues), based on ~~the Stipulated Settlement Letter~~an 8.3% rate of return (which incorporates a ROACE of 10.5%).

On September 24, 2019, Hawaii Electric Light and the Consumer Advocate (Parties) filed a Stipulated Partial Settlement Letter which documented agreements reached with the Consumer Advocate on ~~July 11, 2017~~all of the issues in the proceeding except for the ROACE, capital structure, amortization period for the state investment tax credit (ITC), and symmetric or asymmetric automatic annual target heat rate adjustment. On October 1, 2019, the Parties filed separate statements of probable entitlement, proposing the amount of interim revenue increase according to their respective proposed ROACE based on the scenario which excludes Hu Honua from the 2019 test year revenue requirement. In Hawaii Electric Light’s Statement of Probable Entitlement, the utility requested the PUC to issue an ~~ROACE of 9.5% and subject to refund with interest, if it exceeds amounts allowed in a final order. The~~interim D&O by November 13, 2019, approving the interim rate increase ~~was implemented~~of $2.79 million over revenues at current effective rates, based on ~~August 31, 2017. On May 1, 2018,~~a ROACE of 9.50% for interim only, an adjusted capitalization structure consisting of a 58% equity ratio, a 40-year amortization of state ITC and the proposed tariff changes to be effective on November 21, 2019. Hawaii Electric Light ~~implemented an interim rate reduction~~requested final increase in revenues be based on a ROACE of ~~$9.9 million which was primarily to incorporate the effects of the Tax Act.~~10.50% for its 2019 test year.

~~On June 29, 2018, the PUC issued its Final D&O, approving the rates implemented in the interim rate reduction.~~

~~On October 5, 2018,~~ Hawaii Electric Light filed ~~a notice that it intends to file an application for a general rate increase~~rebuttal testimonies on ~~or after December 5, 2018 but before January 1, 2019.~~

~~Tax Cuts~~October 9, 2019, which addressed the unresolved issues between Hawaiian Electric and ~~Jobs Act impact on utility rates. The Utilities began tracking~~ the ~~impact of the Tax Cuts~~Consumer Advocate and ~~Jobs Act of 2017 (Tax Act) as of January 1, 2018. Each Utility accrued regulatory liabilities for estimated tax savings from January 1~~responded to the ~~date incorporated~~Participants’ proposals and comments made in ~~rates:~~

~~Hawaiian Electric incorporated~~their direct testimonies. The evidentiary hearing is scheduled during the ~~Tax Act reductions in rates (based on the 2017 test year rate case) effective April 13, 2018.~~week of December 16, 2019.

~~Hawaii Electric Light incorporated the Tax Act reductions (based on the 2016 test year rate case) effective May 1, 2018.~~

~~Maui Electric’s rates were adjusted for the Tax Act as follows:~~


◦	~~adjustments for the period January 1, 2018 through May 31, 2018 are in the annual Revenue Balancing Account adjustment, which became effective on June 1, 2018,~~


◦	~~adjustments for the period June 1, 2018 through August 22, 2018 are embedded in the Revenue Balancing Account, which will be incorporated in rates on June 1, 2019, and~~


◦	~~adjustments from August 23, 2018 and thereafter are incorporated in interim rates as a result of the 2018 test year rate case.~~

~~See discussion in “Decoupling” section above.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Condensed consolidating financial information. ~~Hawaiian Electric is not required to provide separate~~Condensed consolidating financial statements or other disclosures concerning Hawaii Electric Light and Maui Electric to holders of the 2004 Debentures, which was issued by Hawaii Electric Light and Maui Electric to Trust III, since all of their voting capital stock is owned, and their obligations with respect to these securities have been fully and unconditionally guaranteed, on a subordinated basis, by Hawaiian Electric. Consolidating information ~~is provided below~~ for Hawaiian Electric and ~~each of~~ its subsidiaries are presented for the three and nine month periods ended September 30, 2019 and 2018, and as of ~~the dates indicated.~~September 30, 2019 and December 31, 2018.

Hawaiian Electric ~~also~~ unconditionally guarantees Hawaii Electric Light’s and Maui Electric’s obligations (a) to the State of Hawaii for the repayment of principal and interest on Special Purpose Revenue Bonds issued for the benefit of Hawaii Electric Light and Maui Electric, and (b) under their respective private placement note agreements and the Hawaii Electric Light notes and Maui Electric notes issued ~~thereunder and (c) relating to the trust preferred securities of Trust III.~~thereunder. Hawaiian Electric is also obligated, after the satisfaction of its obligations on its own preferred stock, to make dividend, redemption and liquidation payments on Hawaii Electric Light’s and Maui Electric’s preferred stock if the respective subsidiary is unable to make such payments.

2318

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Three months ended September 30, ~~2018~~2019



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	491,723		93,576		103,236		—	(205	)	$	688,330
Expenses
Fuel oil	139,747			21,427		37,919		—	—		199,093
Purchased power	135,447			24,342		15,248		—	—		175,037
Other operation and maintenance	80,582			19,868		23,965		—	—		124,415
Depreciation	35,867			10,453		7,615		—	—		53,935
Taxes, other than income taxes	46,433			8,359		9,265		—	—		64,057
Total expenses	438,076			84,449		94,012		—	—		616,537
Operating income	53,647			9,127		9,224		—	(205	)	71,793
Allowance for equity funds used during construction	2,685			229		336		—	—		3,250
Equity in earnings of subsidiaries	11,048			—		—		—	(11,048	)	—
Retirement defined benefits expense—other than service costs	(582		)	(105	)	(36	)	—	—		(723		)
Interest expense and other charges, net	(12,771		)	(2,524	)	(2,339	)	—	205		(17,429		)
Allowance for borrowed funds used during construction	990			95		123		—	—		1,208
Income before income taxes	55,017			6,822		7,308		—	(11,048	)	58,099
Income taxes	7,968			1,420		1,434		—	—		10,822
Net income	47,049			5,402		5,874		—	(11,048	)	47,277
Preferred stock dividends of subsidiaries	—			133		95		—	—		228
Net income attributable to Hawaiian Electric	47,049			5,269		5,779		—	(11,048	)	47,049
Preferred stock dividends of Hawaiian Electric	270			—		—		—	—		270
Net income for common stock	$	46,779		5,269		5,779		—	(11,048	)	$	46,779

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric
Consolidated
Revenues $ 488,210
98,981
100,273
—
(55 ) $ 687,409
Expenses
Fuel oil 141,357
26,429
38,765
—
—
206,551
Purchased power 138,135
24,091
15,364
—
—
177,590
Other operation and maintenance 78,988
15,253
19,312
—
—
113,553
Depreciation 34,282
10,072
6,629
—
—
50,983
Taxes, other than income taxes 46,096
9,215
9,385
—
—
64,696
Total expenses 438,858
85,060
89,455
—
—
613,373
Operating income 49,352
13,921
10,818
—
(55 ) 74,036
Allowance for equity funds used during construction 1,648
39
275
—
—
1,962
Equity in earnings of subsidiaries 16,636
—
—
—
(16,636 ) —
Retirement defined benefits expense—other than service costs (475 ) (104 ) (103 ) —
—
(682 )
Interest expense and other charges, net (13,542 ) (3,026 ) (2,455 ) —
55
(18,968 )
Allowance for borrowed funds used during construction 810
49
147
—
—
1,006
Income before income taxes 54,429
10,879
8,682
—
(16,636 ) 57,354
Income taxes 4,447
1,571
1,126
—
—
7,144
Net income 49,982
9,308
7,556
—
(16,636 ) 50,210
Preferred stock dividends of subsidiaries —
133
95
—
—
228
Net income attributable to Hawaiian Electric 49,982
9,175
7,461
—
(16,636 ) 49,982
Preferred stock dividends of Hawaiian Electric 270
—
—
—
—
270
Net income for common stock $ 49,712
9,175
7,461
—
(16,636 ) $ 49,712

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Three months ended September 30, ~~2018~~2019



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net income for common stock	$	46,779		5,269		5,779		—	(11,048	)	$	46,779
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	2,519			387		309		—	(696	)	2,519
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(2,493		)	(387	)	(309	)	—	696		(2,493		)
Other comprehensive income, net of taxes	26			—		—		—	—		26
Comprehensive income attributable to common shareholder	$	46,805		5,269		5,779		—	(11,048	)	$	46,805

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consolidating
adjustments
Hawaiian Electric
Consolidated
Net income for common stock $ 49,712
9,175
7,461
—
(16,636 ) $ 49,712
Other comprehensive income (loss), net of taxes:

Retirement benefit plans:

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits 4,753
705
606
—
(1,311 ) 4,753
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes (4,725 ) (705 ) (606 ) —
1,311
(4,725 )
Other comprehensive income, net of taxes 28
—
—
—
—
28
Comprehensive income attributable to common shareholder $ 49,740
9,175
7,461
—
(16,636 ) $ 49,740

2419

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Three months ended September 30, ~~2017~~2018



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	488,210		98,981		100,273		—	(55	)	$	687,409
Expenses
Fuel oil	141,357			26,429		38,765		—	—		206,551
Purchased power	138,135			24,091		15,364		—	—		177,590
Other operation and maintenance	78,988			15,253		19,312		—	—		113,553
Depreciation	34,282			10,072		6,629		—	—		50,983
Taxes, other than income taxes	46,096			9,215		9,385		—	—		64,696
Total expenses	438,858			85,060		89,455		—	—		613,373
Operating income	49,352			13,921		10,818		—	(55	)	74,036
Allowance for equity funds used during construction	1,648			39		275		—	—		1,962
Equity in earnings of subsidiaries	16,636			—		—		—	(16,636	)	—
Retirement defined benefits expense—other than service costs	(475		)	(104	)	(103	)	—	—		(682		)
Interest expense and other charges, net	(13,542		)	(3,026	)	(2,455	)	—	55		(18,968		)
Allowance for borrowed funds used during construction	810			49		147		—	—		1,006
Income before income taxes	54,429			10,879		8,682		—	(16,636	)	57,354
Income taxes	4,447			1,571		1,126		—	—		7,144
Net income	49,982			9,308		7,556		—	(16,636	)	50,210
Preferred stock dividends of subsidiaries	—			133		95		—	—		228
Net income attributable to Hawaiian Electric	49,982			9,175		7,461		—	(16,636	)	49,982
Preferred stock dividends of Hawaiian Electric	270			—		—		—	—		270
Net income for common stock	$	49,712		9,175		7,461		—	(16,636	)	$	49,712

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric
Consolidated
Revenues $ 429,267
84,334
85,198
—
(30 ) $ 598,769
Expenses
Fuel oil 103,959
15,754
26,545
—
—
146,258
Purchased power 123,893
21,332
15,122
—
—
160,347
Other operation and maintenance 64,996
16,608
17,077
—
—
98,681
Depreciation 32,722
9,685
5,799
—
—
48,206
Taxes, other than income taxes 40,824
7,928
8,028
—
—
56,780
Total expenses 366,394
71,307
72,571
—
—
510,272
Operating income 62,873
13,027
12,627
—
(30 ) 88,497
Allowance for equity funds used during construction 3,108
167
207
—
—
3,482
Equity in earnings of subsidiaries 12,767
—
—
—
(12,767 ) —
Retirement defined benefits expense—other than service costs (1,225 ) 15
(211 ) —
—
(1,421 )
Interest expense and other charges, net (11,786 ) (2,899 ) (2,252 ) —
30
(16,907 )
Allowance for borrowed funds used during construction 1,173
72
94
—
—
1,339
Income before income taxes 66,910
10,382
10,465
—
(12,767 ) 74,990
Income taxes 19,153
3,815
4,037
—
—
27,005
Net income 47,757
6,567
6,428
—
(12,767 ) 47,985
Preferred stock dividends of subsidiaries —
133
95
—
—
228
Net income attributable to Hawaiian Electric 47,757
6,434
6,333
—
(12,767 ) 47,757
Preferred stock dividends of Hawaiian Electric 270
—
—
—
—
270
Net income for common stock $ 47,487
6,434
6,333
—
(12,767 ) $ 47,487

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Three months ended September 30, ~~2017~~2018



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net income for common stock	$	49,712		9,175		7,461		—	(16,636	)	$	49,712
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	4,753			705		606		—	(1,311	)	4,753
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(4,725		)	(705	)	(606	)	—	1,311		(4,725		)
Other comprehensive income, net of taxes	28			—		—		—	—		28
Comprehensive income attributable to common shareholder	$	49,740		9,175		7,461		—	(16,636	)	$	49,740

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consolidating
adjustments
Hawaiian Electric
Consolidated
Net income for common stock
$ 47,487
6,434
6,333
—
(12,767 ) $ 47,487
Other comprehensive income (loss), net of taxes:

Retirement benefit plans:

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits 3,618
476
404
—
(880 ) 3,618
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes (3,596 ) (476 ) (404 ) —
880
(3,596 )
Other comprehensive income, net of taxes 22
—
—
—
—
22
Comprehensive income attributable to common shareholder $ 47,509
6,434
6,333
—
(12,767 ) $ 47,509

2520

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Nine months ended September 30, ~~2018~~2019



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	1,347,412		270,697		282,939		—	(439	)	$	1,900,609
Expenses
Fuel oil	374,100			62,210		105,012		—	—		541,322
Purchased power	367,541			67,548		37,247		—	—		472,336
Other operation and maintenance	240,311			56,635		64,859		—	—		361,805
Depreciation	107,602			31,359		22,834		—	—		161,795
Taxes, other than income taxes	127,654			25,170		26,480		—	—		179,304
Total expenses	1,217,208			242,922		256,432		—	—		1,716,562
Operating income	130,204			27,775		26,507		—	(439	)	184,047
Allowance for equity funds used during construction	7,746			579		1,010		—	—		9,335
Equity in earnings of subsidiaries	30,983			—		—		—	(30,983	)	—
Retirement defined benefits expense—other than service costs	(1,716		)	(316	)	(95	)	—	—		(2,127		)
Interest expense and other charges, net	(38,961		)	(8,345	)	(7,078	)	—	439		(53,945		)
Allowance for borrowed funds used during construction	2,854			242		369		—	—		3,465
Income before income taxes	131,110			19,935		20,713		—	(30,983	)	140,775
Income taxes	18,821			4,431		4,548		—	—		27,800
Net income	112,289			15,504		16,165		—	(30,983	)	112,975
Preferred stock dividends of subsidiaries	—			400		286		—	—		686
Net income attributable to Hawaiian Electric	112,289			15,104		15,879		—	(30,983	)	112,289
Preferred stock dividends of Hawaiian Electric	810			—		—		—	—		810
Net income for common stock	$	111,479		15,104		15,879		—	(30,983	)	$	111,479

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric
Consolidated
Revenues $ 1,321,089
276,462
268,567
—
(156 ) $ 1,865,962
Expenses
Fuel oil 375,862
64,348
105,026
—
—
545,236
Purchased power 367,317
72,589
38,332
—
—
478,238
Other operation and maintenance 228,773
50,366
54,666
—
—
333,805
Depreciation 103,112
30,165
18,533
—
—
151,810
Taxes, other than income taxes 125,214
25,835
25,275
—
—
176,324
Total expenses 1,200,278
243,303
241,832
—
—
1,685,413
Operating income 120,811
33,159
26,735
—
(156 ) 180,549
Allowance for equity funds used during construction 7,123
274
842
—
—
8,239
Equity in earnings of subsidiaries 35,041
—
—
—
(35,041 ) —
Retirement defined benefits expense—other than service costs (2,091 ) (312 ) (531 ) —
—
(2,934 )
Interest expense and other charges, net (38,967 ) (8,855 ) (7,156 ) —
156
(54,822 )
Allowance for borrowed funds used during construction 3,198
190
427
—
—
3,815
Income before income taxes 125,115
24,456
20,317
—
(35,041 ) 134,847
Income taxes 15,949
5,017
4,029
—
—
24,995
Net income 109,166
19,439
16,288
—
(35,041 ) 109,852
Preferred stock dividends of subsidiaries —
400
286
—
—
686
Net income attributable to Hawaiian Electric 109,166
19,039
16,002
—
(35,041 ) 109,166
Preferred stock dividends of Hawaiian Electric 810
—
—
—
—
810
Net income for common stock $ 108,356
19,039
16,002
—
(35,041 ) $ 108,356

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Nine months ended September 30, ~~2018~~2019



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net income for common stock	$	111,479		15,104		15,879		—	(30,983	)	$	111,479
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	7,162			1,091		887		—	(1,978	)	7,162
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(7,089		)	(1,089	)	(887	)	—	1,976		(7,089		)
Other comprehensive income, net of taxes	73			2		—		—	(2	)	73
Comprehensive income attributable to common shareholder	$	111,552		15,106		15,879		—	(30,985	)	$	111,552

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consolidating
adjustments
Hawaiian Electric
Consolidated
Net income for common stock $ 108,356
19,039
16,002
—
(35,041 ) $ 108,356
Other comprehensive income (loss), net of taxes:

Retirement benefit plans:

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits 14,259
2,114
1,817
—
(3,931 ) 14,259
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes (14,174 ) (2,113 ) (1,817 ) —
3,930
(14,174 )
Other comprehensive income, net of taxes 85
1
—
—
(1 ) 85
Comprehensive income attributable to common shareholder $ 108,441
19,040
16,002
—
(35,042 ) $ 108,441

2621

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Nine months ended September 30, ~~2017~~2018



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	1,321,089		276,462		268,567		—	(156	)	$	1,865,962
Expenses
Fuel oil	375,862			64,348		105,026		—	—		545,236
Purchased power	367,317			72,589		38,332		—	—		478,238
Other operation and maintenance	228,773			50,366		54,666		—	—		333,805
Depreciation	103,112			30,165		18,533		—	—		151,810
Taxes, other than income taxes	125,214			25,835		25,275		—	—		176,324
Total expenses	1,200,278			243,303		241,832		—	—		1,685,413
Operating income	120,811			33,159		26,735		—	(156	)	180,549
Allowance for equity funds used during construction	7,123			274		842		—	—		8,239
Equity in earnings of subsidiaries	35,041			—		—		—	(35,041	)	—
Retirement defined benefits expense—other than service costs	(2,091		)	(312	)	(531	)	—	—		(2,934		)
Interest expense and other charges, net	(38,967		)	(8,855	)	(7,156	)	—	156		(54,822		)
Allowance for borrowed funds used during construction	3,198			190		427		—	—		3,815
Income before income taxes	125,115			24,456		20,317		—	(35,041	)	134,847
Income taxes	15,949			5,017		4,029		—	—		24,995
Net income	109,166			19,439		16,288		—	(35,041	)	109,852
Preferred stock dividends of subsidiaries	—			400		286		—	—		686
Net income attributable to Hawaiian Electric	109,166			19,039		16,002		—	(35,041	)	109,166
Preferred stock dividends of Hawaiian Electric	810			—		—		—	—		810
Net income for common stock	$	108,356		19,039		16,002		—	(35,041	)	$	108,356

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric
Consolidated
Revenues $ 1,186,524
245,026
242,756
—
(51 ) $ 1,674,255
Expenses
Fuel oil 301,774
47,486
82,527
—
—
431,787
Purchased power 340,498
63,403
36,637
—
—
440,538
Other operation and maintenance 200,648
49,850
51,939
—
—
302,437
Depreciation 98,167
29,056
17,355
—
—
144,578
Taxes, other than income taxes 113,483
23,080
23,012
—
—
159,575
Total expenses 1,054,570
212,875
211,470
—
—
1,478,915
Operating income 131,954
32,151
31,286
—
(51 ) 195,340
Allowance for equity funds used during construction 7,823
416
669
—
—
8,908
Equity in earnings of subsidiaries 29,306
—
—
—
(29,306 ) —
Retirement defined benefits expense—other than service costs (3,812 ) 183
(650 ) —
—
(4,279 )
Interest expense and other charges, net (36,405 ) (8,899 ) (7,372 ) —
51
(52,625 )
Allowance for borrowed funds used during construction 2,910
172
289
—
—
3,371
Income before income taxes 131,776
24,023
24,222
—
(29,306 ) 150,715
Income taxes 36,370
8,973
9,280
—
—
54,623
Net income 95,406
15,050
14,942
—
(29,306 ) 96,092
Preferred stock dividends of subsidiaries —
400
286
—
—
686
Net income attributable to Hawaiian Electric 95,406
14,650
14,656
—
(29,306 ) 95,406
Preferred stock dividends of Hawaiian Electric 810
—
—
—
—
810
Net income for common stock $ 94,596
14,650
14,656
—
(29,306 ) $ 94,596

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Nine months ended September 30, ~~2017~~2018



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net income for common stock	$	108,356		19,039		16,002		—	(35,041	)	$	108,356
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	14,259			2,114		1,817		—	(3,931	)	14,259
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(14,174		)	(2,113	)	(1,817	)	—	3,930		(14,174		)
Other comprehensive income, net of taxes	85			1		—		—	(1	)	85
Comprehensive income attributable to common shareholder	$	108,441		19,040		16,002		—	(35,042	)	$	108,441

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consolidating
adjustments
Hawaiian Electric
Consolidated
Net income for common stock
$ 94,596
14,650
14,656
—
(29,306 ) $ 94,596
Other comprehensive income (loss), net of taxes:

Derivatives qualifying as cash flow hedges:
Reclassification adjustment to net income, net of taxes 454
—
—
—
—
454
Retirement benefit plans:

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits 10,857
1,428
1,214
—
(2,642 ) 10,857
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes (10,790 ) (1,427 ) (1,214 ) —
2,641
(10,790 )
Other comprehensive income, net of taxes 521
1
—
—
(1 ) 521
Comprehensive income attributable to common shareholder $ 95,117
14,651
14,656
—
(29,307 ) $ 95,117

2722

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

September 30, ~~2018~~2019



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consoli- dating adjustments		Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	42,112		5,606		3,612		—	—		$	51,330
Plant and equipment	4,676,163			1,282,065		1,139,058		—	—		7,097,286
Less accumulated depreciation	(1,595,962		)	(569,878	)	(520,548	)	—	—		(2,686,388		)
Construction in progress	185,022			17,219		24,315		—	—		226,556
Utility property, plant and equipment, net	3,307,335			735,012		646,437		—	—		4,688,784
Nonutility property, plant and equipment, less accumulated depreciation	5,311			115		1,532		—	—		6,958
Total property, plant and equipment, net	3,312,646			735,127		647,969		—	—		4,695,742
Investment in wholly owned subsidiaries, at equity	588,886			—		—		—	(588,886	)	—
Current assets
Cash and cash equivalents	22,073			5,003		5,330		101	—		32,507
Advances to affiliates	22,200			15,000		—		—	(37,200	)	—
Customer accounts receivable, net	111,171			25,676		26,246		—	—		163,093
Accrued unbilled revenues, net	90,015			15,880		17,925		—	—		123,820
Other accounts receivable, net	10,994			1,516		2,056		—	(9,948	)	4,618
Fuel oil stock, at average cost	62,645			10,694		11,204		—	—		84,543
Materials and supplies, at average cost	33,747			10,170		16,893		—	—		60,810
Prepayments and other	38,439			4,622		4,655		—	(1,395	)	46,321
Regulatory assets	29,410			1,684		1,857		—	—		32,951
Total current assets	420,694			90,245		86,166		101	(48,543	)	548,663
Other long-term assets
Operating lease right-of-use assets	190,300			1,560		394		—	—		192,254
Regulatory assets	502,254			112,900		101,162		—	—		716,316
Other	72,386			17,096		18,511		—	—		107,993
Total other long-term assets	764,940			131,556		120,067		—	—		1,016,563
Total assets	$	5,087,166		956,928		854,202		101	(637,429	)	$	6,260,968
Capitalization and liabilities
Capitalization
Common stock equity	$	1,993,254		303,345		285,440		101	(588,886	)	$	1,993,254
Cumulative preferred stock—not subject to mandatory redemption	22,293			7,000		5,000		—	—		34,293
Long-term debt, net	937,211			203,952		181,092		—	—		1,322,255
Total capitalization	2,952,758			514,297		471,532		101	(588,886	)	3,349,802
Current liabilities
Current portion of operating lease liabilities	62,634			94		30		—	—		62,758
Current portion of long-term debt	61,976			13,992		19,997		—	—		95,965
Short-term borrowings from non-affiliates	112,353			—		—		—	—		112,353
Short-term borrowings from affiliate	15,000			—		22,200		—	(37,200	)	—
Accounts payable	113,544			17,654		21,364		—	—		152,562
Interest and preferred dividends payable	19,699			3,695		4,215		—	(69	)	27,540
Taxes accrued	143,156			30,874		32,204		—	(1,395	)	204,839
Regulatory liabilities	9,255			5,836		4,425		—	—		19,516
Other	51,943			10,187		15,648		—	(9,879	)	67,899
Total current liabilities	589,560			82,332		120,083		—	(48,543	)	743,432
Deferred credits and other liabilities
Operating lease liabilities	126,979			1,466		367		—	—		128,812
Deferred income taxes	282,336			53,939		56,286		—	—		392,561
Regulatory liabilities	663,414			181,472		99,338		—	—		944,224
Unamortized tax credits	60,095			16,054		14,571		—	—		90,720
Defined benefit pension and other postretirement benefit plans liability	359,420			71,112		69,654		—	—		500,186
Other	52,604			36,256		22,371		—	—		111,231
Total deferred credits and other liabilities	1,544,848			360,299		262,587		—	—		2,167,734
Total capitalization and liabilities	$	5,087,166		956,928		854,202		101	(637,429	)	$	6,260,968

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consoli-
dating
adjustments
Hawaiian Electric
Consolidated
Assets

Property, plant and equipment
Utility property, plant and equipment

Land $ 44,030
5,873
3,612
—
—
$ 53,515
Plant and equipment 4,404,946
1,227,530
1,087,570
—
—
6,720,046
Less accumulated depreciation (1,513,351 ) (541,451 ) (512,906 ) —
—
(2,567,708 )
Construction in progress 154,566
11,060
27,460
—
—
193,086
Utility property, plant and equipment, net 3,090,191
703,012
605,736
—
—
4,398,939
Nonutility property, plant and equipment, less accumulated depreciation 5,933
115
1,532
—
—
7,580
Total property, plant and equipment, net 3,096,124
703,127
607,268
—
—
4,406,519
Investment in wholly owned subsidiaries, at equity 571,574
—
—
—
(571,574 ) —
Current assets

Cash and cash equivalents 3,867
3,027
229
101
—
7,224
Advances to affiliates 2,000
—
—
—
(2,000 ) —
Customer accounts receivable, net 124,792
29,364
24,629
—
—
178,785
Accrued unbilled revenues, net 94,956
15,810
16,936
—
—
127,702
Other accounts receivable, net 10,312
1,352
1,069
—
(9,355 ) 3,378
Fuel oil stock, at average cost 61,110
11,483
19,229
—
—
91,822
Materials and supplies, at average cost 32,407
7,840
18,260
—
—
58,507
Prepayments and other 44,458
8,604
7,670
—
—
60,732
Regulatory assets 75,541
6,217
7,672
—
—
89,430
Total current assets 449,443
83,697
95,694
101
(11,355 ) 617,580
Other long-term assets

Regulatory assets 527,650
115,114
98,730
—
—
741,494
Other 77,899
20,363
18,272
—
—
116,534
Total other long-term assets 605,549
135,477
117,002
—
—
858,028
Total assets $ 4,722,690
922,301
819,964
101
(582,929 ) $ 5,882,127
Capitalization and liabilities

Capitalization

Common stock equity $ 1,876,237
294,220
277,253
101
(571,574 ) $ 1,876,237
Cumulative preferred stock—not subject to mandatory redemption 22,293
7,000
5,000
—
—
34,293
Long-term debt, net 1,000,020
217,724
200,887
—
—
1,418,631
Total capitalization 2,898,550
518,944
483,140
101
(571,574 ) 3,329,161
Current liabilities

Current portion of long-term debt 29,996
10,998
8,999
—
—
49,993
Short-term borrowings from non-affiliates 85,913
—
—
—
—
85,913
Short-term borrowings from affiliate —
—
2,000
—
(2,000 ) —
Accounts payable 90,937
12,289
19,706
—
—
122,932
Interest and preferred dividends payable 19,994
4,243
4,030
—
(9 ) 28,258
Taxes accrued 136,485
30,829
28,462
—
—
195,776
Regulatory liabilities 3,124
2,850
4,185
—
—
10,159
Other 64,697
9,594
16,109
—
(9,346 ) 81,054
Total current liabilities 431,146
70,803
83,491
—
(11,355 ) 574,085
Deferred credits and other liabilities

Deferred income taxes 285,789
56,417
58,863
—
—
401,069
Regulatory liabilities 649,761
174,739
97,693
—
—
922,193
Unamortized tax credits 61,299
16,271
15,503
—
—
93,073
Defined benefit pension and other postretirement benefit plans liability 332,743
64,026
63,510
—
—
460,279
Other 63,402
21,101
17,764
—
—
102,267
Total deferred credits and other liabilities 1,392,994
332,554
253,333
—
—
1,978,881
Total capitalization and liabilities $ 4,722,690
922,301
819,964
101
(582,929 ) $ 5,882,127

2823

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

December 31, ~~2017~~2018



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consoli- dating adjustments		Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	40,449		5,606		3,612		—	—		$	49,667
Plant and equipment	4,456,090			1,259,553		1,094,028		—	—		6,809,671
Less accumulated depreciation	(1,523,861		)	(547,848	)	(505,633	)	—	—		(2,577,342		)
Construction in progress	193,677			8,781		30,687		—	—		233,145
Utility property, plant and equipment, net	3,166,355			726,092		622,694		—	—		4,515,141
Nonutility property, plant and equipment, less accumulated depreciation	5,314			115		1,532		—	—		6,961
Total property, plant and equipment, net	3,171,669			726,207		624,226		—	—		4,522,102
Investment in wholly owned subsidiaries, at equity	576,838			—		—		—	(576,838	)	—
Current assets
Cash and cash equivalents	16,732			15,623		3,421		101	—		35,877
Customer accounts receivable, net	125,960			26,483		25,453		—	—		177,896
Accrued unbilled revenues, net	88,060			17,051		16,627		—	—		121,738
Other accounts receivable, net	21,962			3,131		3,033		—	(21,911	)	6,215
Fuel oil stock, at average cost	54,262			11,027		14,646		—	—		79,935
Materials and supplies, at average cost	30,291			7,155		17,758		—	—		55,204
Prepayments and other	23,214			5,212		3,692		—	—		32,118
Regulatory assets	60,093			3,177		7,746		—	—		71,016
Total current assets	420,574			88,859		92,376		101	(21,911	)	579,999
Other long-term assets
Regulatory assets	537,708			120,658		104,044		—	—		762,410
Other	69,749			15,944		17,299		—	—		102,992
Total other long-term assets	607,457			136,602		121,343		—	—		865,402
Total assets	$	4,776,538		951,668		837,945		101	(598,749	)	$	5,967,503
Capitalization and liabilities
Capitalization
Common stock equity	$	1,957,641		295,874		280,863		101	(576,838	)	$	1,957,641
Cumulative preferred stock—not subject to mandatory redemption	22,293			7,000		5,000		—	—		34,293
Long-term debt, net	1,000,137			217,749		200,916		—	—		1,418,802
Total capitalization	2,980,071			520,623		486,779		101	(576,838	)	3,410,736
Current liabilities
Short-term borrowings-non-affiliate	25,000			—		—		—	—		25,000
Accounts payable	126,384			20,045		25,362		—	—		171,791
Interest and preferred dividends payable	16,203			4,203		2,841		—	(32	)	23,215
Taxes accrued	164,747			34,128		34,458		—	—		233,333
Regulatory liabilities	7,699			4,872		5,406		—	—		17,977
Other	46,391			15,077		20,414		—	(21,879	)	60,003
Total current liabilities	386,424			78,325		88,481		—	(21,911	)	531,319
Deferred credits and other liabilities
Deferred income taxes	271,438			54,936		56,823		—	—		383,197
Regulatory liabilities	657,210			176,101		98,948		—	—		932,259
Unamortized tax credits	60,271			16,217		15,034		—	—		91,522
Defined benefit pension and other postretirement benefit plans liability	359,174			73,147		71,338		—	—		503,659
Other	61,950			32,319		20,542		—	—		114,811
Total deferred credits and other liabilities	1,410,043			352,720		262,685		—	—		2,025,448
Total capitalization and liabilities	$	4,776,538		951,668		837,945		101	(598,749	)	$	5,967,503

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consoli-
dating
adjustments
Hawaiian Electric
Consolidated
Assets

Property, plant and equipment
Utility property, plant and equipment

Land $ 43,972
6,189
3,016
—
—
$ 53,177
Plant and equipment 4,140,892
1,206,776
1,053,372
��
—
6,401,040
Less accumulated depreciation (1,451,612 ) (528,024 ) (496,716 ) —
—
(2,476,352 )
Construction in progress 231,571
8,182
23,341
—
—
263,094
Utility property, plant and equipment, net 2,964,823
693,123
583,013
—
—
4,240,959
Nonutility property, plant and equipment, less accumulated depreciation 5,933
115
1,532
—
—
7,580
Total property, plant and equipment, net 2,970,756
693,238
584,545
—
—
4,248,539
Investment in wholly owned subsidiaries, at equity
557,013
—
—
—
(557,013 ) —
Current assets

Cash and cash equivalents 2,059
4,025
6,332
101
—
12,517
Advances to affiliates —
—
12,000
—
(12,000 ) —
Customer accounts receivable, net 86,987
22,510
18,392
—
—
127,889
Accrued unbilled revenues, net 77,176
15,940
13,938
—
—
107,054
Other accounts receivable, net 11,376
2,268
1,210
—
(7,691 ) 7,163
Fuel oil stock, at average cost 64,972
8,698
13,203
—
—
86,873
Materials and supplies, at average cost 28,325
8,041
18,031
—
—
54,397
Prepayments and other 17,928
4,514
2,913
—
—
25,355
Regulatory assets 76,203
5,038
7,149
—
—
88,390
Total current assets 365,026
71,034
93,168
101
(19,691 ) 509,638
Other long-term assets

Regulatory assets 557,464
122,783
100,660
—
—
780,907
Other 60,157
16,311
15,061
—
—
91,529
Total other long-term assets 617,621
139,094
115,721
—
—
872,436
Total assets $ 4,510,416
903,366
793,434
101
(576,704 ) $ 5,630,613
Capitalization and liabilities

Capitalization

Common stock equity $ 1,845,283
286,647
270,265
101
(557,013 ) $ 1,845,283
Cumulative preferred stock—not subject to mandatory redemption 22,293
7,000
5,000
—
—
34,293
Long-term debt, net 924,979
202,701
190,836
—
—
1,318,516
Total capitalization 2,792,555
496,348
466,101
101
(557,013 ) 3,198,092
Current liabilities

Current portion of long-term debt 29,978
10,992
8,993
�� —
—
49,963
Short-term borrowings-non-affiliate 4,999
—
—
—
—
4,999
Short-term borrowings-affiliate 12,000
—
—
—
(12,000 ) —
Accounts payable 121,328
17,855
20,427
—
—
159,610
Interest and preferred dividends payable 15,677
4,174
2,735
—
(11 ) 22,575
Taxes accrued 133,839
34,950
30,312
—
—
199,101
Regulatory liabilities 607
1,245
1,549
—
—
3,401
Other 43,121
9,818
14,197
—
(7,680 ) 59,456
Total current liabilities 361,549
79,034
78,213
—
(19,691 ) 499,105
Deferred credits and other liabilities

Deferred income taxes 281,223
56,955
55,863
—
—
394,041
Regulatory liabilities 613,329
169,139
94,901
—
—
877,369
Unamortized tax credits 59,039
16,167
15,163
—
—
90,369
Defined benefit pension and other postretirement benefit plans liability 340,983
66,447
65,518
—
—
472,948
Other 61,738
19,276
17,675
—
—
98,689
Total deferred credits and other liabilities 1,356,312
327,984
249,120
—
—
1,933,416
Total capitalization and liabilities $ 4,510,416
903,366
793,434
101
(576,704 ) $ 5,630,613

2924

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Changes in Common Stock Equity

Nine months ended September 30, ~~2018~~2019



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2018	$	1,957,641		295,874		280,863		101	(576,838	)	$	1,957,641
Net income for common stock	111,479			15,104		15,879		—	(30,983	)	111,479
Other comprehensive income, net of taxes	73			2		—		—	(2	)	73
Common stock dividends	(75,939		)	(7,635	)	(11,301	)	—	18,936		(75,939		)
Common stock issuance expenses	—			—		(1	)	—	1		—
Balance, September 30, 2019	$	1,993,254		303,345		285,440		101	(588,886	)	$	1,993,254

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consolidating
adjustments
Hawaiian Electric
Consolidated
Balance, December 31, 2017 $ 1,845,283
286,647
270,265
101
(557,013 ) $ 1,845,283
Net income for common stock 108,356
19,039
16,002
—
(35,041 ) 108,356
Other comprehensive income, net of taxes 85
1
—
—
(1 ) 85
Common stock dividends (77,479 ) (11,467 ) (9,014 ) —
20,481
(77,479 )
Common stock issuance expenses (8 ) —
—
—
—
(8 )
Balance, September 30, 2018 $ 1,876,237
294,220
277,253
101
(571,574 ) $ 1,876,237

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Changes in Common Stock Equity

Nine months ended September 30, ~~2017~~2018



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2017	$	1,845,283		286,647		270,265		101	(557,013	)	$	1,845,283
Net income for common stock	108,356			19,039		16,002		—	(35,041	)	108,356
Other comprehensive income, net of taxes	85			1		—		—	(1	)	85
Common stock dividends	(77,479		)	(11,467	)	(9,014	)	—	20,481		(77,479		)
Common stock issuance expenses	(8		)	—		—		—	—		(8		)
Balance, September 30, 2018	$	1,876,237		294,220		277,253		101	(571,574	)	$	1,876,237

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consolidating
adjustments
Hawaiian Electric
Consolidated
Balance, December 31, 2016 $ 1,799,787
291,291
259,554
101
(550,946 ) $ 1,799,787
Net income for common stock 94,596
14,650
14,656
—
(29,306 ) 94,596
Other comprehensive income, net of taxes 521
1
—
—
(1 ) 521
Common stock dividends (65,825 ) (11,622 ) (8,959 ) —
20,581
(65,825 )
Common stock issuance expenses (4 ) (1 ) —
—
1
(4 )
Balance, September 30, 2017 $ 1,829,075
294,319
265,251
101
(559,671 ) $ 1,829,075

3025

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Nine months ended September 30, ~~2018~~2019



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net cash provided by operating activities	$	223,733		41,694		36,126		—	(18,935	)	$	282,618
Cash flows from investing activities
Capital expenditures	(223,803		)	(29,119	)	(44,885	)	—	—		(297,807		)
Advances to affiliates	(22,200		)	(15,000	)	—		—	37,200		—
Other	2,975			(283	)	(30	)	—	—		2,662
Net cash used in investing activities	(243,028		)	(44,402	)	(44,915	)	—	37,200		(295,145		)
Cash flows from financing activities
Common stock dividends	(75,939		)	(7,635	)	(11,301	)	—	18,936		(75,939		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(810		)	(400	)	(286	)	—	—		(1,496		)
Proceeds from issuance of short-term debt	25,000			—		—		—	—		25,000
Proceeds from issuance of long-term debt	120,000			70,000		10,000		—	—		200,000
Repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds	(121,546		)	(70,000	)	(10,000	)	—	—		(201,546		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	77,353			—		22,200		—	(37,200	)	62,353
Other	578			123		85		—	(1	)	785
Net cash provided by financing activities	24,636			(7,912	)	10,698		—	(18,265	)	9,157
Net increase (decrease) in cash and cash equivalents	5,341			(10,620	)	1,909		—	—		(3,370		)
Cash and cash equivalents, beginning of period	16,732			15,623		3,421		101	—		35,877
Cash and cash equivalents, end of period	$	22,073		5,003		5,330		101	—		$	32,507

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric
Other
subsidiaries

Consolidating
adjustments
Hawaiian Electric
Consolidated
Cash flows from operating activities

Net income $ 109,166
19,439
16,288
—
(35,041 ) $ 109,852
Adjustments to reconcile net income to net cash provided by operating activities:

Equity in earnings of subsidiaries (35,116 ) —
—
—
35,041
(75 )
Common stock dividends received from subsidiaries 20,531
—
—
—
(20,481 ) 50
Depreciation of property, plant and equipment 103,112
30,165
18,533
—
—
151,810
Other amortization 15,159
3,992
672
—
—
19,823
Deferred income taxes 7,182
1,195
4,458
—
—
12,835
Allowance for equity funds used during construction (7,123 ) (274 ) (842 ) —
—
(8,239 )
Other (1,227 ) (315 ) (410 ) —
—
(1,952 )
Changes in assets and liabilities:

Increase in accounts receivable (41,566 ) (6,738 ) (6,499 ) —
1,664
(53,139 )
Decrease (increase) in accrued unbilled revenues (17,780 ) 130
(2,998 ) —
—
(20,648 )
Decrease (increase) in fuel oil stock 3,862
(2,785 ) (6,026 ) —
—
(4,949 )
Decrease (increase) in materials and supplies (4,082 ) 201
(229 ) —
—
(4,110 )
Increase in regulatory assets (1,704 ) (2,245 ) (2,525 ) —
—
(6,474 )
Increase (decrease) in accounts payable (10,541 ) 234
1,595
—
—
(8,712 )
Change in prepaid and accrued income taxes, tax credits and revenue taxes (20,949 ) (9,828 ) (6,029 ) —
(331 ) (37,137 )
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability 6,018
(570 ) 440
—
—
5,888
Change in other assets and liabilities 34,934
2,602
3,027
—
(1,664 ) 38,899
Net cash provided by operating activities 159,876
35,203
19,455
—
(20,812 ) 193,722
Cash flows from investing activities

��
Capital expenditures (245,393 ) (43,417 ) (45,920 ) —
—
(334,730 )
Contributions in aid of construction 19,486
2,960
1,915
—
—
24,361
Other 4,518
1,177
3,785
—
331
9,811
Advances (to) from affiliates (2,000 ) —
12,000
—
(10,000 ) —
Net cash used in investing activities (223,389 ) (39,280 ) (28,220 ) —
(9,669 ) (300,558 )
Cash flows from financing activities

Common stock dividends (77,479 ) (11,467 ) (9,014 ) —
20,481
(77,479 )
Preferred stock dividends of Hawaiian Electric and subsidiaries (810 ) (400 ) (286 ) —
—
(1,496 )
Proceeds from issuance of long-term debt 75,000
15,000
10,000
—
—
100,000
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less 68,914
—
2,000
—
10,000
80,914
Other (304 ) (54 ) (38 ) —
—
(396 )
Net cash provided by financing activities 65,321
3,079
2,662
—
30,481
101,543
Net increase (decrease) in cash and cash equivalents 1,808
(998 ) (6,103 ) —
—
(5,293 )
Cash and cash equivalents, beginning of period 2,059
4,025
6,332
101
—
12,517
Cash and cash equivalents, end of period $ 3,867
3,027
229
101
—
$ 7,224

3126

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Nine months ended September 30, ~~2017~~2018



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net cash provided by operating activities	$	159,876		35,203		19,455		—	(20,812	)	$	193,722
Cash flows from investing activities
Capital expenditures	(225,907		)	(40,457	)	(44,005	)	—	—		(310,369		)
Other	4,518			1,177		3,785		—	331		9,811
Advances (to) from affiliates	(2,000		)	—		12,000		—	(10,000	)	—
Net cash used in investing activities	(223,389		)	(39,280	)	(28,220	)	—	(9,669	)	(300,558		)
Cash flows from financing activities
Common stock dividends	(77,479		)	(11,467	)	(9,014	)	—	20,481		(77,479		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(810		)	(400	)	(286	)	—	—		(1,496		)
Proceeds from issuance of long-term debt	75,000			15,000		10,000		—	—		100,000
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	68,914			—		2,000		—	10,000		80,914
Other	(304		)	(54	)	(38	)	—	—		(396		)
Net cash provided by financing activities	65,321			3,079		2,662		—	30,481		101,543
Net increase (decrease) in cash and cash equivalents	1,808			(998	)	(6,103	)	—	—		(5,293		)
Cash and cash equivalents, beginning of period	2,059			4,025		6,332		101	—		12,517
Cash and cash equivalents, end of period	$	3,867		3,027		229		101	—		$	7,224

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other
subsidiaries Consolidating
adjustments Hawaiian Electric
Consolidated
Cash flows from operating activities

Net income $ 95,406
15,050
14,942
—
(29,306 ) $ 96,092
Adjustments to reconcile net income to net cash provided by operating activities:

Equity in earnings of subsidiaries (29,381 ) —
—
—
29,306
(75 )
Common stock dividends received from subsidiaries 20,656
—
—
—
(20,581 ) 75
Depreciation of property, plant and equipment 98,167
29,056
17,355
—
—
144,578
Other amortization 2,168
1,718
2,232
—
—
6,118
Deferred income taxes 12,166
5,237
7,493
—
4,641
29,537
Allowance for equity funds used during construction (7,823 ) (416 ) (669 ) —
—
(8,908 )
Other 216
566
(256 ) —
—
526
Changes in assets and liabilities:
Increase in accounts receivable (6,114 ) (1,127 ) (1,912 ) —
1,066
(8,087 )
Increase in accrued unbilled revenues (14,823 ) (1,581 ) (1,610 ) —
—
(18,014 )
Decrease (increase) in fuel oil stock 6,779
195
(797 ) —
—
6,177
Decrease (increase) in materials and supplies 1,063
(1,580 ) (1,763 ) —
—
(2,280 )
Decrease (increase) in regulatory assets 9,471
(2,935 ) (2,614 ) —
—
3,922
Increase (decrease) in accounts payable 7,010
(2,660 ) 1,780
—
—
6,130
Change in prepaid and accrued income taxes, tax credits and revenue taxes 10,920
(758 ) 210
—
(5,081 ) 5,291
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability 532
39
(118 ) —
—
453
Change in other assets and liabilities (2,709 ) 1,059
54
—
(1,066 ) (2,662 )
Net cash provided by operating activities 203,704
41,863
34,327
—
(21,021 ) 258,873
Cash flows from investing activities

Capital expenditures (236,727 ) (36,700 ) (33,548 ) —
—
(306,975 )
Contributions in aid of construction 34,787
3,460
2,356
—
—
40,603
Other 6,089
871
714
—
440
8,114
Advances (to) from affiliates —
(3,100 ) 6,000
—
(2,900 ) —
Net cash used in investing activities (195,851 ) (35,469 ) (24,478 ) —
(2,460 ) (258,258 )
Cash flows from financing activities

Common stock dividends (65,825 ) (11,622 ) (8,959 ) —
20,581
(65,825 )
Preferred stock dividends of Hawaiian Electric and subsidiaries (810 ) (400 ) (286 ) —
—
(1,496 )
Proceeds from issuance of special purpose revenue bonds 162,000
28,000
75,000
—

265,000
Funds transferred for redemption of special purpose revenue bonds (162,000 ) (28,000 ) (75,000 ) —
—
(265,000 )
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less 3,100
—
—
—
2,900
6,000
Other (2,252 ) (407 ) (934 ) —
—
(3,593 )
Net cash used in financing activities (65,787 ) (12,429 ) (10,179 ) —
23,481
(64,914 )
Net decrease in cash and cash equivalents (57,934 ) (6,035 ) (330 ) —
—
(64,299 )
Cash and cash equivalents, beginning of period 61,388
10,749
2,048
101
—
74,286
Cash and cash equivalents, end of period $ 3,454
4,714
1,718
101
—
$ 9,987

3227

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Note 4 · Bank segment

Selected financial information

American Savings Bank, F.S.B.

Statements of Income Data



	Three months ended September 30,					Nine months ended September 30
(in thousands)	2019			2018		2019		2018
Interest and dividend income
Interest and fees on loans	$	59,260		$	55,885	$	175,740	$	163,318
Interest and dividends on investment securities	7,599			9,300		25,762		27,130
Total interest and dividend income	66,859			65,185		201,502		190,448
Interest expense
Interest on deposit liabilities	4,384			3,635		12,923		9,876
Interest on other borrowings	422			404		1,361		1,293
Total interest expense	4,806			4,039		14,284		11,169
Net interest income	62,053			61,146		187,218		179,279
Provision for loan losses	3,315			6,033		17,873		12,337
Net interest income after provision for loan losses	58,738			55,113		169,345		166,942
Noninterest income
Fees from other financial services	5,085			4,543		14,445		13,941
Fee income on deposit liabilities	5,320			5,454		15,402		15,781
Fee income on other financial products	1,706			1,746		5,129		5,075
Bank-owned life insurance	1,660			2,663		6,309		4,667
Mortgage banking income	1,490			169		3,080		1,399
Gains on sale of investment securities, net	653			—		653		—
Other income, net	428			736		1,420		1,708
Total noninterest income	16,342			15,311		46,438		42,571
Noninterest expense
Compensation and employee benefits	25,364			23,952		76,626		72,047
Occupancy	5,694			4,363		15,843		12,837
Data processing	3,763			3,583		11,353		10,587
Services	2,829			2,485		7,861		8,560
Equipment	2,163			1,783		6,416		5,385
Office supplies, printing and postage	1,297			1,556		4,320		4,554
Marketing	1,142			993		3,455		2,723
FDIC insurance	(5		)	638		1,249		2,078
Other expense	3,676			4,240		12,049		12,897
Total noninterest expense	45,923			43,593		139,172		131,668
Income before income taxes	29,157			26,831		76,611		77,845
Income taxes	6,269			5,610		15,868		17,103
Net income	$	22,888		$	21,221	$	60,743	$	60,742

Three months ended September 30 Nine months ended September 30
(in thousands) 2018 2017 2018 2017
Interest and dividend income

Interest and fees on loans $ 55,885
$ 52,210
$ 163,318
$ 155,269
Interest and dividends on investment securities 9,300
6,850
27,130
20,593
Total interest and dividend income 65,185
59,060
190,448
175,862
Interest expense

Interest on deposit liabilities 3,635
2,444
9,876
6,858
Interest on other borrowings 404
470
1,293
2,110
Total interest expense 4,039
2,914
11,169
8,968
Net interest income 61,146
56,146
179,279
166,894
Provision for loan losses 6,033
490
12,337
7,231
Net interest income after provision for loan losses 55,113
55,656
166,942
159,663
Noninterest income

Fees from other financial services 4,543
5,635
13,941
17,055
Fee income on deposit liabilities 5,454
5,533
15,781
16,526
Fee income on other financial products 1,746
1,904
5,075
5,741
Bank-owned life insurance 2,663
1,257
4,667
4,165
Mortgage banking income 169
520
1,399
1,896
Other income, net 736
380
1,708
1,229
Total noninterest income 15,311
15,229
42,571
46,612
Noninterest expense

Compensation and employee benefits 23,952
23,512
72,047
71,095
Occupancy 4,363
4,284
12,837
12,623
Data processing 3,583
3,262
10,587
9,749
Services 2,485
2,863
8,560
7,989
Equipment 1,783
1,814
5,385
5,333
Office supplies, printing and postage 1,556
1,444
4,554
4,506
Marketing 993
934
2,723
2,290
FDIC insurance 638
746
2,078
2,296
Other expense 4,240
5,262
12,897
14,674
Total noninterest expense 43,593
44,121
131,668
130,555
Income before income taxes 26,831
26,764
77,845
75,720
Income taxes 5,610
9,172
17,103
25,582
Net income $ 21,221
$ 17,592
$ 60,742
$ 50,138

3328

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*:



	Three months ended September 30,						Nine months ended September 30
(in thousands)	2019			2018			2019			2018
Interest and dividend income	66,859			65,185			$	201,502		$	190,448
Noninterest income	16,342			15,311			46,438			42,571
*Revenues-Bank	83,201			80,496			247,940			233,019
Total interest expense	4,806			4,039			14,284			11,169
Provision for loan losses	3,315			6,033			17,873			12,337
Noninterest expense	45,923			43,593			139,172			131,668
Less: Retirement defined benefits gain (expense)—other than service costs	196			(433		)	276			(1,223		)
*Expenses-Bank	54,240			53,232			171,605			153,951
*Operating income-Bank	28,961			27,264			76,335			79,068
Add back: Retirement defined benefits (gain) expense—other than service costs	(196		)	433			(276		)	1,223
Income before income taxes	$	29,157		$	26,831		$	76,611		$	77,845

Three months ended September 30 Nine months ended September 30
(in thousands) 2018 2017 2018 2017
Interest and dividend income 65,185
59,060
$ 190,448
$ 175,862
Noninterest income 15,311
15,229
42,571
46,612
*Revenues-Bank 80,496
74,289
233,019
222,474
Total interest expense 4,039
2,914
11,169
8,968
Provision for loan losses 6,033
490
12,337
7,231
Noninterest expense 43,593
44,121
131,668
130,555
Less: Retirement defined benefits expense—other than service costs (433 ) (212 ) (1,223 ) (608 )
*Expenses-Bank 53,232
47,313
153,951
146,146
*Operating income-Bank 27,264
26,976
79,068
76,328
Add back: Retirement defined benefits expense—other than service costs 433
212
1,223
608
Income before income taxes $ 26,831
$ 26,764
$ 77,845
$ 75,720

American Savings Bank, F.S.B.

Statements of Comprehensive Income Data



	Three months ended September 30,						Nine months ended September 30
(in thousands)	2019			2018			2019			2018
Net income	$	22,888		$	21,221		$	60,743		$	60,742
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of (taxes) benefits of $(1,557), $1,876, $(10,194) and $8,335, respectively	4,253			(5,123		)	27,846			(22,768		)
Reclassification adjustment for net realized gains included in net income, net of taxes of $175, nil, $175, and nil, respectively	(478		)	—			(478		)	—
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of (taxes) benefits of $13, $141, $(1,109) and $968, respectively	34			382			(3,032		)	1,970
Other comprehensive income (loss), net of taxes	3,809			(4,741		)	24,336			(20,798		)
Comprehensive income	$	26,697		$	16,480		$	85,079		$	39,944

Three months ended September 30 Nine months ended September 30
(in thousands) 2018 2017 2018 2017
Net income $ 21,221
$ 17,592
$ 60,742
$ 50,138
Other comprehensive income (loss), net of taxes:

Net unrealized gains (losses) on available-for-sale investment securities:

Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of tax benefits (taxes) of $1,876, $(137), $8,335 and $(1,619), respectively (5,123 ) 208
(22,768 ) 2,452
Retirement benefit plans:

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $141, $138, $968 and $675, respectively 382
209
1,970
1,023
Other comprehensive income (loss), net of taxes (4,741 ) 417
(20,798 ) 3,475
Comprehensive income $ 16,480
$ 18,009
$ 39,944
$ 53,613

3429

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

American Savings Bank, F.S.B.

Balance Sheets Data


(in thousands)	September 30, 2018						December 31, 2017						September 30, 2019						December 31, 2018
Assets
Cash and due from banks				$	119,453					$	140,934					$	135,813					$	122,059
Interest-bearing deposits				39,575						93,165						1,315						4,225
Investment securities
Available-for-sale, at fair value				1,387,571						1,401,198						1,210,748						1,388,533
Held-to-maturity, at amortized cost (fair value of $99,929 and $44,412, respectively)				102,498						44,515
Held-to-maturity, at amortized cost (fair value of $137,497 and $142,057, respectively)																132,704						141,875
Stock in Federal Home Loan Bank, at cost				8,158						9,706						9,953						9,958
Loans held for investment				4,754,359						4,670,768						5,084,336						4,843,021
Allowance for loan losses				(54,127		)				(53,637		)				(53,040		)				(52,119		)
Net loans				4,700,232						4,617,131						5,031,296						4,790,902
Loans held for sale, at lower of cost or fair value				1,036						11,250						17,115						1,805
Other				488,743						398,570						514,116						486,347
Goodwill				82,190						82,190						82,190						82,190
Total assets				$	6,929,456					$	6,798,659					$	7,135,250					$	7,027,894
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing				$	1,789,351					$	1,760,233					$	1,885,028					$	1,800,727
Deposit liabilities—interest-bearing				4,341,064						4,130,364						4,311,195						4,358,125
Other borrowings				71,110						190,859						129,190						110,040
Other				115,401						110,356						135,606						124,613
Total liabilities				6,316,926						6,191,812						6,461,019						6,393,505
Commitments and contingencies
Common stock				1						1						1						1
Additional paid in capital				346,757						345,018
Additional paid-in capital																348,933						347,170
Retained earnings				317,519						292,957						339,029						325,286
Accumulated other comprehensive loss, net of tax benefits
Net unrealized losses on securities	$	(37,719	)				$	(14,951	)
Net unrealized gains (losses) on securities													$	2,945					$	(24,423	)
Retirement benefit plans	(14,028		)	(51,747		)	(16,178		)	(31,129		)	(16,677		)	(13,732		)	(13,645		)	(38,068		)
Total shareholder’s equity				612,530						606,847						674,231						634,389
Total liabilities and shareholder’s equity				$	6,929,456					$	6,798,659					$	7,135,250					$	7,027,894

Other assets
Bank-owned life insurance				$	150,772					$	148,775					$	156,077					$	151,172
Premises and equipment, net				203,062						136,270						207,659						214,415
Prepaid expenses				5,477						3,961
Accrued interest receivable				19,818						18,724						19,743						20,140
Mortgage-servicing rights				8,426						8,639						8,567						8,062
Low-income housing equity investments				69,865						59,016						69,286						67,626
Real estate acquired in settlement of loans, net				438						133						—						406
Real estate held for sale																9,074						—
Other				30,885						23,052						43,710						24,526
				$	488,743					$	398,570					$	514,116					$	486,347
Other liabilities
Accrued expenses				$	56,830					$	39,312					$	41,264					$	54,084
Federal and state income taxes payable				1,287						3,736						9,472						2,012
Cashier’s checks				23,711						27,000						27,498						26,906
Advance payments by borrowers				4,998						10,245						5,164						10,183
Other				28,575						30,063						52,208						31,428
				$	115,401					$	110,356					$	135,606					$	124,613

3530

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.

Other borrowings consisted of securities sold under agreements to repurchase and advances from the Federal Home Loan Bank (FHLB) of $7191.2 million and ~~nil, respectively, as of~~ ~~September 30, 2018~~ ~~and $141 million and $50~~$38.0 million, respectively, as of September 30, 2019 and $65.0 million and $45.0 million, respectively, as of December 31, ~~2017~~2018.

Investment securities. The major components of investment securities were as follows:



	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Gross unrealized losses
										Less than 12 months						12 months or longer
(dollars in thousands)										Number of issues	Fair value		Amount			Number of issues	Fair value		Amount
September 30, 2019
Available-for-sale
U.S. Treasury and federal agency obligations	$	126,084	$	822	$	(198	)	$	126,708	—	$	—	$	—		4	$	32,686	$	(198	)
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,017,256		6,647		(4,598		)	1,019,305		12	67,163		(252		)	85	389,212		(4,346		)
Corporate bonds	34,926		1,350		—			36,276		—	—		—			—	—		—
Mortgage revenue bonds	28,459		—		—			28,459		—	—		—			—	—		—
	$	1,206,725	$	8,819	$	(4,796	)	$	1,210,748	12	$	67,163	$	(252	)	89	$	421,898	$	(4,544	)
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	132,704	$	4,793	$	—		$	137,497	—	$	—	$	—		—	$	—	$	—
	$	132,704	$	4,793	$	—		$	137,497	—	$	—	$	—		—	$	—	$	—
December 31, 2018
Available-for-sale
U.S. Treasury and federal agency obligations	$	156,694	$	62	$	(2,407	)	$	154,349	5	$	25,882	$	(208	)	19	$	118,405	$	(2,199	)
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,192,169		789		(31,542		)	1,161,416		22	129,011		(1,330		)	145	947,890		(30,212		)
Corporate bonds	49,398		103		(369		)	49,132		6	23,175		(369		)	—	—		—
Mortgage revenue bonds	23,636		—		—			23,636		—	—		—			—	—		—
	$	1,421,897	$	954	$	(34,318	)	$	1,388,533	33	$	178,068	$	(1,907	)	164	$	1,066,295	$	(32,411	)
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	141,875	$	1,446	$	(1,264	)	$	142,057	3	$	29,814	$	(400	)	2	$	31,505	$	(864	)
	$	141,875	$	1,446	$	(1,264	)	$	142,057	3	$	29,814	$	(400	)	2	$	31,505	$	(864	)

Amortized cost Gross unrealized gains Gross unrealized losses
Estimated fair
value
Gross unrealized losses
Less than 12 months 12 months or longer
(dollars in thousands) Number of issues
Fair
value
Amount Number of issues
Fair
value
Amount
September 30, 2018

Available-for-sale
U.S. Treasury and federal agency obligations $ 175,144
$ 24
$ (4,754 ) $ 170,414
11
$ 67,258
$ (1,339 ) 17
$ 93,132
$ (3,415 )
Mortgage-related securities- FNMA, FHLMC and GNMA 1,195,492
292
(47,094 ) 1,148,690
59
473,714
(13,996 ) 111
666,149
(33,098 )
Corporate bonds 49,378
46
(41 ) 49,383
5
22,839
(41 ) —
—
—
Mortgage revenue bonds 19,084
—
—
19,084
—
—
—
—
—
—
$ 1,439,098
$ 362
$ (51,889 ) $ 1,387,571
75
$ 563,811
$ (15,376 ) 128
$ 759,281
$ (36,513 )
Held-to-maturity
Mortgage-related securities- FNMA, FHLMC and GNMA $ 102,498
$ —
$ (2,569 ) $ 99,929
7
$ 99,929
$ (2,569 ) —
$ —
$ —
$ 102,498
$ —
$ (2,569 ) $ 99,929
7
$ 99,929
$ (2,569 ) —
$ —
$ —
December 31, 2017
Available-for-sale
U.S. Treasury and federal agency obligations $ 185,891
$ 438
$ (2,031 ) $ 184,298
15
$ 83,137
$ (825 ) 8
$ 62,296
$ (1,206 )
Mortgage-related securities- FNMA, FHLMC and GNMA 1,220,304
793
(19,624 ) 1,201,473
67
653,635
(6,839 ) 77
459,912
(12,785 )
Mortgage revenue bond 15,427
—
—
15,427
—
—
—
—
—
—
$ 1,421,622
$ 1,231
$ (21,655 ) $ 1,401,198
82
$ 736,772
$ (7,664 ) 85
$ 522,208
$ (13,991 )
Held-to-maturity
Mortgage-related securities- FNMA, FHLMC and GNMA $ 44,515
$ 1
$ (104 ) $ 44,412
2
$ 35,744
$ (104 ) —
$ —
$ —
$ 44,515
$ 1
$ (104 ) $ 44,412
2
$ 35,744
$ (104 ) —
$ —
$ —

ASB does not believe that the investment securities that were in an unrealized loss position at September 30, ~~2018,~~2019, represent an other-than-temporary impairment (OTTI). Total gross unrealized losses were primarily attributable to ~~rising interest rates relative to when~~change in market conditions. On a quarterly basis the investment securities ~~were purchased and not due to the credit quality~~are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment ~~securities.~~portfolio continue to be investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and ~~mortgage-related~~agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ~~The corporate bonds are all investment grade and rated A- or higher.~~ ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB did not recognize OTTI for the quarters and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. ~~Mortgage-related~~Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

The contractual maturities of investment securities were as follows:



September 30, 2019	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	47,046	$	47,021
Due after one year through five years	89,085		90,675
Due after five years through ten years	37,911		38,320
Due after ten years	15,427		15,427
	189,469		191,443
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,017,256		1,019,305
Total available-for-sale securities	$	1,206,725	$	1,210,748
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	132,704	$	137,497
Total held-to-maturity securities	$	132,704	$	137,497

September 30, 2018 Amortized cost Fair value
(in thousands)
Available-for-sale
Due in one year or less $ 25,004
$ 24,896
Due after one year through five years 108,364
106,774
Due after five years through ten years 82,720
80,439
Due after ten years 27,518
26,772
243,606
238,881
Mortgage-related securities-FNMA, FHLMC and GNMA 1,195,492
1,148,690
Total available-for-sale securities $ 1,439,098
$ 1,387,571
Held-to-maturity
Mortgage-related securities-FNMA, FHLMC and GNMA $ 102,498
$ 99,929
Total held-to-maturity securities $ 102,498
$ 99,929

Proceeds from the sale of available-for-sale securities were ~~nil~~$19.8 million for both the three and nine months ended September 30, 2019, respectively, and NaN for both the three and nine months ended September 30, 2018, ~~and 2017.~~respectively. Gross realized gains and losses were ~~nil~~$0.7 million for both the three and nine months ended September 30, 2019, respectively, and NaN for both the three and nine months ended September 30, 2018, ~~and 2017.~~respectively.

Loans. The components of loans were summarized as follows:



	September 30, 2019			December 31, 2018
(in thousands)
Real estate:
Residential 1-4 family	$	2,183,888		$	2,143,397
Commercial real estate	810,971			748,398
Home equity line of credit	1,079,262			978,237
Residential land	15,095			13,138
Commercial construction	76,382			92,264
Residential construction	10,104			14,307
Total real estate	4,175,702			3,989,741
Commercial	638,213			587,891
Consumer	269,741			266,002
Total loans	5,083,656			4,843,634
Less: Deferred fees and discounts	680			(613		)
Allowance for loan losses	(53,040		)	(52,119		)
Total loans, net	$	5,031,296		$	4,790,902

September 30, 2018 December 31, 2017
(in thousands)

Real estate:

Residential 1-4 family $ 2,110,489
$ 2,118,047
Commercial real estate 733,749
733,106
Home equity line of credit 949,872
913,052
Residential land 12,982
15,797
Commercial construction 112,838
108,273
Residential construction 13,441
14,910
Total real estate 3,933,371
3,903,185
Commercial 574,243
544,828
Consumer 247,058
223,564
Total loans 4,754,672
4,671,577
Less: Deferred fees and discounts (313 ) (809 )
Allowance for loan losses (54,127 ) (53,637 )
Total loans, net $ 4,700,232
$ 4,617,131

ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential properties, the loan-to-value ratio may not exceed 80% of the lower of the appraised value or purchase price at origination. ~~ASB is subject to the risk that the private mortgage insurance company cannot satisfy the bank's claim on policies.~~

3732

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Allowance for loan losses.The allowance for loan losses (balances and changes) and financing receivables were as follows:



(in thousands)	Residential 1-4 family			Commercial real estate			Home equity line of credit			Residential land			Commercial construction			Residential construction			Commercial loans			Consumer loans			Total
Three months ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	2,015		$	15,811		$	6,881		$	537		$	2,046		$	2		$	13,073		$	18,060		$	58,425
Charge-offs	(7		)	—			(13		)	—			—			—			(4,900		)	(5,311		)	(10,231		)
Recoveries	27			—			4			28			—			—			726			746			1,531
Provision	(56		)	(396		)	135			(104		)	196			1			(517		)	4,056			3,315
Ending balance	$	1,979		$	15,415		$	7,007		$	461		$	2,242		$	3		$	8,382		$	17,551		$	53,040
Three months ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	2,939		$	15,298		$	7,334		$	642		$	4,616		$	4		$	10,161		$	11,809		$	52,803
Charge-offs	—			—			(80		)	(1		)	—			—			(788		)	(4,508		)	(5,377		)
Recoveries	5			—			71			122			—			—			105			365			668
Provision	(623		)	(1,033		)	(347		)	(296		)	(356		)	—			1,255			7,433			6,033
Ending balance	$	2,321		$	14,265		$	6,978		$	467		$	4,260		$	4		$	10,733		$	15,099		$	54,127
Nine months ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	1,976		$	14,505		$	6,371		$	479		$	2,790		$	4		$	9,225		$	16,769		$	52,119
Charge-offs	(26		)	—			(32		)	(4		)	—			—			(6,012		)	(15,972		)	(22,046		)
Recoveries	644			—			13			42			—			—			2,187			2,208			5,094
Provision	(615		)	910			655			(56		)	(548		)	(1		)	2,982			14,546			17,873
Ending balance	$	1,979		$	15,415		$	7,007		$	461		$	2,242		$	3		$	8,382		$	17,551		$	53,040
September 30, 2019
Ending balance: individually evaluated for impairment	$	906		$	7		$	500		$	—		$	—		$	—		$	905		$	504		$	2,822
Ending balance: collectively evaluated for impairment	$	1,073		$	15,408		$	6,507		$	461		$	2,242		$	3		$	7,477		$	17,047		$	50,218
Financing Receivables:
Ending balance	$	2,183,888		$	810,971		$	1,079,262		$	15,095		$	76,382		$	10,104		$	638,213		$	269,741		$	5,083,656
Ending balance: individually evaluated for impairment	$	16,556		$	877		$	12,909		$	3,194		$	—		$	—		$	9,370		$	558		$	43,464
Ending balance: collectively evaluated for impairment	$	2,167,332		$	810,094		$	1,066,353		$	11,901		$	76,382		$	10,104		$	628,843		$	269,183		$	5,040,192
Nine months ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	2,902		$	15,796		$	7,522		$	896		$	4,671		$	12		$	10,851		$	10,987		$	53,637
Charge-offs	(31		)	—			(224		)	(18		)	—			—			(1,930		)	(12,628		)	(14,831		)
Recoveries	73			—			98			173			—			—			1,555			1,085			2,984
Provision	(623		)	(1,531		)	(418		)	(584		)	(411		)	(8		)	257			15,655			12,337
Ending balance	$	2,321		$	14,265		$	6,978		$	467		$	4,260		$	4		$	10,733		$	15,099		$	54,127
December 31, 2018
Ending balance: individually evaluated for impairment	$	876		$	7		$	701		$	6		$	—		$	—		$	628		$	4		$	2,222
Ending balance: collectively evaluated for impairment	$	1,100		$	14,498		$	5,670		$	473		$	2,790		$	4		$	8,597		$	16,765		$	49,897
Financing Receivables:
Ending balance	$	2,143,397		$	748,398		$	978,237		$	13,138		$	92,264		$	14,307		$	587,891		$	266,002		$	4,843,634
Ending balance: individually evaluated for impairment	$	16,494		$	915		$	14,800		$	2,059		$	—		$	—		$	5,340		$	89		$	39,697
Ending balance: collectively evaluated for impairment	$	2,126,903		$	747,483		$	963,437		$	11,079		$	92,264		$	14,307		$	582,551		$	265,913		$	4,803,937

(in thousands)
Residential
1-4 family

Commercial real
estate
Home
equity line of credit Residential land Commercial construction Residential construction Commercial loans Consumer loans Unallo-cated Total
Three months ended September 30, 2018

Allowance for loan losses:

Beginning balance $ 2,939
$ 15,298
$ 7,334
$ 642
$ 4,616
$ 4
$ 10,161
$ 11,809
$ —
$ 52,803
Charge-offs —
—
(80 ) (1 ) —
—
(788 ) (4,508 ) —
(5,377 )
Recoveries 5
—
71
122
—
—
105
365
—
668
Provision (623 ) (1,033 ) (347 ) (296 ) (356 ) —
1,255
7,433
—
6,033
Ending balance $ 2,321
$ 14,265
$ 6,978
$ 467
$ 4,260
$ 4
$ 10,733
$ 15,099
$ —
$ 54,127
Three months ended September 30, 2017

Allowance for loan losses:

Beginning balance $ 3,130
$ 18,840
$ 5,527
$ 1,264
$ 4,706
$ 9
$ 14,552
$ 8,328
$ —
$ 56,356
Charge-offs (522 ) —
—
—
—
—
(1,215 ) (3,160 ) —
(4,897 )
Recoveries 33
—
164
259
—
—
326
316
—
1,098
Provision 347
(2,800 ) (36 ) (141 ) 370
2
(595 ) 3,343
—
490
Ending balance $ 2,988
$ 16,040
$ 5,655
$ 1,382
$ 5,076
$ 11
$ 13,068
$ 8,827
$ —
$ 53,047
Nine months ended September 30, 2018

Allowance for loan losses:

Beginning balance $ 2,902
$ 15,796
$ 7,522
$ 896
$ 4,671
$ 12
$ 10,851
$ 10,987
$ —
$ 53,637
Charge-offs (31 ) —
(224 ) (18 ) —
—
(1,930 ) (12,628 ) —
(14,831 )
Recoveries 73
—
98
173
—
—
1,555
1,085
—
2,984
Provision (623 ) (1,531 ) (418 ) (584 ) (411 ) (8 ) 257
15,655
—
12,337
Ending balance $ 2,321
$ 14,265
$ 6,978
$ 467
$ 4,260
$ 4
$ 10,733
$ 15,099
$ —
$ 54,127
September 30, 2018
Ending balance: individually evaluated for impairment $ 1,020
$ 51
$ 1,088
$ —
$ —
$ —
$ 728
$ 3
$ 2,890
Ending balance: collectively evaluated for impairment $ 1,301
$ 14,214
$ 5,890
$ 467
$ 4,260
$ 4
$ 10,005
$ 15,096
$ —
$ 51,237
Financing Receivables:

Ending balance $ 2,110,489
$ 733,749
$ 949,872
$ 12,982
$ 112,838
$ 13,441
$ 574,243
$ 247,058
$ 4,754,672
Ending balance: individually evaluated for impairment $ 17,703
$ 981
$ 14,602
$ 2,057
$ —
$ —
$ 5,727
$ 90
$ 41,160
Ending balance: collectively evaluated for impairment $ 2,092,786
$ 732,768
$ 935,270
$ 10,925
$ 112,838
$ 13,441
$ 568,516
$ 246,968
$ 4,713,512
Nine months ended September 30, 2017

Allowance for loan losses:

Beginning balance $ 2,873
$ 16,004
$ 5,039
$ 1,738
$ 6,449
$ 12
$ 16,618
$ 6,800
$ —
$ 55,533
Charge-offs (528 ) —
(14 ) (92 ) —
—
(3,477 ) (8,360 ) —
(12,471 )
Recoveries 91
—
294
477
—
—
922
970
—
2,754
Provision 552
36
336
(741 ) (1,373 ) (1 ) (995 ) 9,417
—
7,231
Ending balance $ 2,988
$ 16,040
$ 5,655
$ 1,382
$ 5,076
$ 11
$ 13,068
$ 8,827
$ —
$ 53,047
December 31, 2017
Ending balance: individually evaluated for impairment $ 1,248
$ 65
$ 647
$ 47
$ —
$ —
$ 694
$ 29
$ 2,730
Ending balance: collectively evaluated for impairment $ 1,654
$ 15,731
$ 6,875
$ 849
$ 4,671
$ 12
$ 10,157
$ 10,958
$ —
$ 50,907
Financing Receivables:

Ending balance $ 2,118,047
$ 733,106
$ 913,052
$ 15,797
�� $ 108,273
$ 14,910
$ 544,828
$ 223,564
$ 4,671,577
Ending balance: individually evaluated for impairment $ 18,284
$ 1,016
$ 8,188
$ 1,265
$ —
$ —
$ 4,574
$ 66
$ 33,393
Ending balance: collectively evaluated for impairment $ 2,099,763
$ 732,090
$ 904,864
$ 14,532
$ 108,273
$ 14,910
$ 540,254
$ 223,498
$ 4,638,184

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Credit quality. ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications: Pass, Special Mention, Substandard, Doubtful and Loss. The AQR is a function of the probability of default model rating, the loss given default and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the Bank may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.

The credit risk profile by internally assigned grade for loans was as follows:



	September 30, 2019								December 31, 2018
(in thousands)	Commercial real estate		Commercial construction		Commercial		Total		Commercial real estate		Commercial construction		Commercial		Total
Grade:
Pass	$	723,864	$	74,093	$	593,952	$	1,391,909	$	658,288	$	89,974	$	547,640	$	1,295,902
Special mention	18,038		—		25,822		43,860		32,871		—		11,598		44,469
Substandard	69,069		2,289		14,753		86,111		57,239		2,290		28,653		88,182
Doubtful	—		—		3,686		3,686		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	$	810,971	$	76,382	$	638,213	$	1,525,566	$	748,398	$	92,264	$	587,891	$	1,428,553

September 30, 2018 December 31, 2017
(in thousands)
Commercial
real estate

Commercial
construction
Commercial
Commercial
real estate

Commercial
construction
Commercial
Grade:

Pass $ 651,524
$ 88,049
$ 523,335
$ 630,877
$ 83,757
$ 492,942
Special mention 35,642
22,500
18,512
49,347
22,500
27,997
Substandard 46,583
2,289
32,396
52,882
2,016
23,421
Doubtful —
—
—
—
—
468
Loss —
—
—
—
—
—
Total $ 733,749
$ 112,838
$ 574,243
$ 733,106
$ 108,273
$ 544,828

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

The credit risk profile based on payment activity for loans was as follows:



(in thousands)	30-59 days past due		60-89 days past due		Greater than 90 days		Total past due		Current		Total financing receivables		Recorded investment> 90 days and accruing
September 30, 2019
Real estate:
Residential 1-4 family	$	2,162	$	807	$	2,452	$	5,421	$	2,178,467	$	2,183,888	$	—
Commercial real estate	347		—		—		347		810,624		810,971		—
Home equity line of credit	736		814		2,127		3,677		1,075,585		1,079,262		—
Residential land	—		—		25		25		15,070		15,095		—
Commercial construction	—		—		—		—		76,382		76,382		—
Residential construction	—		—		—		—		10,104		10,104		—
Commercial	359		174		1,280		1,813		636,400		638,213		—
Consumer	4,230		2,923		2,461		9,614		260,127		269,741		—
Total loans	$	7,834	$	4,718	$	8,345	$	20,897	$	5,062,759	$	5,083,656	$	—
December 31, 2018
Real estate:
Residential 1-4 family	$	3,757	$	2,773	$	2,339	$	8,869	$	2,134,528	$	2,143,397	$	—
Commercial real estate	—		—		—		—		748,398		748,398		—
Home equity line of credit	1,139		681		2,720		4,540		973,697		978,237		—
Residential land	9		—		319		328		12,810		13,138		—
Commercial construction	—		—		—		—		92,264		92,264		—
Residential construction	—		—		—		—		14,307		14,307		—
Commercial	315		281		548		1,144		586,747		587,891		—
Consumer	5,220		3,166		2,702		11,088		254,914		266,002		—
Total loans	$	10,440	$	6,901	$	8,628	$	25,969	$	4,817,665	$	4,843,634	$	—

(in thousands)
30-59
days
past due

60-89
days
past due

Greater
than
90 days

Total
past due
Current
Total
financing
receivables

Recorded
investment>
90 days and
accruing
September 30, 2018

Real estate:

Residential 1-4 family $ 2,000
$ 2,254
$ 4,132
$ 8,386
$ 2,102,103
$ 2,110,489
$ —
Commercial real estate —
—
—
—
733,749
733,749
—
Home equity line of credit 1,375
493
3,194
5,062
944,810
949,872
—
Residential land —
—
418
418
12,564
12,982
—
Commercial construction —
—
—
—
112,838
112,838
—
Residential construction —
—
—
—
13,441
13,441
—
Commercial 1,053
417
463
1,933
572,310
574,243
—
Consumer 4,679
2,200
1,969
8,848
238,210
247,058
—
Total loans $ 9,107
$ 5,364
$ 10,176
$ 24,647
$ 4,730,025
$ 4,754,672
$ —
December 31, 2017

Real estate:

Residential 1-4 family $ 1,532
$ 1,715
$ 5,071
$ 8,318
$ 2,109,729
$ 2,118,047
$ —
Commercial real estate —
—
—
—
733,106
733,106
—
Home equity line of credit 425
114
2,051
2,590
910,462
913,052
—
Residential land 23
—
625
648
15,149
15,797
—
Commercial construction —
—
—
—
108,273
108,273
—
Residential construction —
—
—
—
14,910
14,910
—
Commercial 1,825
2,025
730
4,580
540,248
544,828
—
Consumer 3,432
2,159
1,876
7,467
216,097
223,564
—
Total loans $ 7,237
$ 6,013
$ 10,353
$ 23,603
$ 4,647,974
$ 4,671,577
$ —

4034

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

The credit risk profile based on nonaccrual loans, accruing loans 90 days or more past due and troubled debt restructuring (TDR) loans was as follows:



(in thousands)	September 30, 2019		December 31, 2018
Real estate:
Residential 1-4 family	$	12,076	$	12,037
Commercial real estate	—		—
Home equity line of credit	7,859		6,348
Residential land	457		436
Commercial construction	—		—
Residential construction	—		—
Commercial	7,004		4,278
Consumer	4,632		4,196
Total nonaccrual loans	$	32,028	$	27,295
Real estate:
Residential 1-4 family	$	—	$	—
Commercial real estate	—		—
Home equity line of credit	—		—
Residential land	—		—
Commercial construction	—		—
Residential construction	—		—
Commercial	—		—
Consumer	—		—
Total accruing loans 90 days or more past due	$	—	$	—
Real estate:
Residential 1-4 family	$	9,981	$	10,194
Commercial real estate	877		915
Home equity line of credit	10,686		11,597
Residential land	2,737		1,622
Commercial construction	—		—
Residential construction	—		—
Commercial	2,564		1,527
Consumer	58		62
Total troubled debt restructured loans not included above	$	26,903	$	25,917

(in thousands) September 30, 2018 December 31, 2017
Real estate:

Residential 1-4 family $ 12,768
$ 12,598
Commercial real estate —
—
Home equity line of credit 7,191
4,466
Residential land 516
841
Commercial construction —
—
Residential construction —
—
Commercial 4,176
3,069
Consumer 3,266
2,617
  Total nonaccrual loans $ 27,917
$ 23,591
Real estate:
Residential 1-4 family $ —
$ —
Commercial real estate —
—
Home equity line of credit —
—
Residential land —
—
Commercial construction —
—
Residential construction —
—
Commercial —
—
Consumer —
—
     Total accruing loans 90 days or more past due $ —
$ —
Real estate:
Residential 1-4 family $ 10,701
$ 10,982
Commercial real estate 981
1,016
Home equity line of credit 11,131
6,584
Residential land 1,542
425
Commercial construction —
—
Residential construction —
—
Commercial 1,806
1,741
Consumer 63
66
     Total troubled debt restructured loans not included above $ 26,224
$ 20,814

4135

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

The total carrying amount and the total unpaid principal balance of impaired loans were as follows:


		September 30, 2018						Three months ended September 30, 2018				Nine months ended September 30, 2018					September 30, 2019						Three months ended September 30, 2019				Nine months ended September 30, 2019
(in thousands)		Recorded investment		Unpaid principal balance		Related Allowance		Average recorded investment		Interest income recognized*		Average recorded investment		Interest income recognized*			Recorded investment		Unpaid principal balance		Related Allowance		Average recorded investment		Interest income recognized*		Average recorded investment		Interest income recognized*
With no related allowance recorded	With no related allowance recorded															With no related allowance recorded
Real estate:
Residential 1-4 family		$	8,689	$	9,200	$	—	$	8,940	$	239	$	8,779	$	396		$	8,277	$	8,877	$	—	$	8,562	$	175	$	8,515	$	422
Commercial real estate		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Home equity line of credit		2,359		2,714		—		2,234		23		2,103		35			1,806		1,967		—		1,797		12		2,091		78
Residential land		2,057		2,256		—		1,773		6		1,358		16			3,194		3,398		—		3,205		40		2,507		90
Commercial construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Residential construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Commercial		3,948		4,915		—		3,915		6		3,099		26			6,749		11,894		—		4,812		239		4,470		239
Consumer		32		32		—		33		—		18		—			2		2		—		21		4		27		4
		$	17,085	$	19,117	$	—	$	16,895	$	274	$	15,357	$	473		$	20,028	$	26,138	$	—	$	18,397	$	470	$	17,610	$	833
With an allowance recorded	With an allowance recorded															With an allowance recorded
Real estate:
Residential 1-4 family		$	9,014	$	9,218	$	1,020	$	8,820	$	84	$	8,909	$	274		$	8,279	$	8,332	$	906	$	8,296	$	86	$	8,377	$	265
Commercial real estate		981		981		51		985		11		997		32			877		877		7		881		9		894		28
Home equity line of credit		12,243		12,327		1,088		12,090		111		10,083		288			11,103		11,133		500		11,332		143		11,606		425
Residential land		—		—		—		20		—		45		3			—		—		—		—		—		36		—
Commercial construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Residential construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Commercial		1,779		1,779		728		1,774		28		1,824		94			2,621		2,621		905		8,330		38		8,026		94
Consumer		58		58		3		57		1		58		3			556		556		504		556		12		301		14
		$	24,075	$	24,363	$	2,890	$	23,746	$	235	$	21,916	$	694		$	23,436	$	23,519	$	2,822	$	29,395	$	288	$	29,240	$	826
Total
Real estate:
Residential 1-4 family		$	17,703	$	18,418	$	1,020	$	17,760	$	323	$	17,688	$	670		$	16,556	$	17,209	$	906	$	16,858	$	261	$	16,892	$	687
Commercial real estate		981		981		51		985		11		997		32			877		877		7		881		9		894		28
Home equity line of credit		14,602		15,041		1,088		14,324		134		12,186		323			12,909		13,100		500		13,129		155		13,697		503
Residential land		2,057		2,256		—		1,793		6		1,403		19			3,194		3,398		—		3,205		40		2,543		90
Commercial construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Residential construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Commercial		5,727		6,694		728		5,689		34		4,923		120			9,370		14,515		905		13,142		277		12,496		333
Consumer		90		90		3		90		1		76		3			558		558		504		577		16		328		18
		$	41,160	$	43,480	$	2,890	$	40,641	$	509	$	37,273	$	1,167		$	43,464	$	49,657	$	2,822	$	47,792	$	758	$	46,850	$	1,659

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

recorded
investment
(as of period end)¹

Related allowance
(as of period end)

(as of period end)¹

recorded
investment
(as of period end)¹

Related allowance
(as of period end)

recorded
investment
(as of period end)¹

Related allowance
(as of period end)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Outstanding
recorded
investment
(as of period end)¹

Troubled debt restructurings that

subsequently defaulted

Troubled debt restructurings that

subsequently defaulted

If loans modified in a TDR subsequently default, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled ~~$0.06 million and nil~~NaN at September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Changes related to MSRs were as follows:



	Three months ended September 30,						Nine months ended September 30
(in thousands)	2019			2018			2019			2018
Mortgage servicing rights
Beginning balance	$	8,103		$	8,509		$	8,062		$	8,639
Amount capitalized	995			305			1,857			1,032
Amortization	(531		)	(388		)	(1,352		)	(1,245		)
Other-than-temporary impairment	—			—			—			—
Carrying amount before valuation allowance	8,567			8,426			8,567			8,426
Valuation allowance for mortgage servicing rights
Beginning balance	—			—			—			—
Provision (recovery)	—			—			—			—
Other-than-temporary impairment	—			—			—			—
Ending balance	—			—			—			—
Net carrying value of mortgage servicing rights	$	8,567		$	8,426		$	8,567		$	8,426

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:



(dollars in thousands)	September 30, 2019			December 31, 2018
Prepayment rate:
25 basis points adverse rate change	$	(1,058	)	$	(250	)
50 basis points adverse rate change	(2,093		)	(566		)
Discount rate:
25 basis points adverse rate change	(90		)	(139		)
50 basis points adverse rate change	(180		)	(275		)

(dollars in thousands) September 30, 2018
December 31, 2017
Prepayment rate:
  25 basis points adverse rate change $ (379 ) $ (869 )
  50 basis points adverse rate change (836 ) (1,828 )
Discount rate:
  25 basis points adverse rate change (134 ) (111 )
  50 basis points adverse rate change (265 ) (220 )

The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

recognized liabilities

Gross amount offset in

Net amount of liabilities presented

in the Balance Sheet

recognized liabilities

Gross amount offset in

Net amount of liabilities presented

in the Balance Sheets

Net amount of liabilities presented

in the Balance Sheets

Net amount of liabilities presented

in the Balance Sheet

Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

September 30, 2018 December 31, 2017
(in thousands) Notional amount Fair value Notional amount Fair value
Interest rate lock commitments $ —
$ —
$ 13,669
$ 131
Forward commitments —
—
14,465
(24 )

The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income:



Derivative Financial Instruments Not Designated as Hedging Instruments	Location of net gains (losses) recognized in the Statements of Income	Three months ended September 30,						Nine months ended September 30
(in thousands)		2019			2018			2019			2018
Interest rate lock commitments	Mortgage banking income	$	(3	)	$	(248	)	$	379		$	(131	)
Forward commitments	Mortgage banking income	39			62			(33		)	24
		$	36		$	(186	)	$	346		$	(107	)

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Note 5 · Credit agreements ~~and long-term debt~~

~~Credit agreements.~~ HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of ~~eight~~8 financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities), effective July 3, 2017, to amend and restate their respective previously existing revolving unsecured credit agreements. The $150 million HEI Facility ~~extended the term of the facility to June 30, 2022. In March 2018, the PUC approved Hawaiian Electric’s request to extend the term of the~~and $200 million Hawaiian Electric Facility toboth terminate on June 30, 2022. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, no amounts were outstanding under the Credit Facilities.

Changes in long-term debt. On May ~~30, 2018,~~13, 2019, the Utilities issued, through a private placement pursuant to separate Note Purchase Agreements (the Note Purchase Agreements), the following unsecured notes bearing taxable interest (the Unsecured Notes):

The Unsecured Notes include substantially the same financial covenants and customary conditions as Hawaiian Electric’s credit agreement. Hawaiian Electric is also a party as guarantor under the Note Purchase Agreements entered into by Hawaii Electric Light and Maui Electric. All the proceeds of the Notes were used by Hawaiian Electric, Hawaii Electric Light and Maui Electric to finance their capital expenditures and/or to reimburse funds used for the payment of capital expenditures. The Unsecured Notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount plus a “Make-Whole Amount,” as defined in the Note Purchase Agreements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

value:



	2004 Junior subordinated deferrable interest debentures redeemed
Aggregate principal amount	$51.5 million
Fixed coupon interest rate	6.50%
Maturity date	May 15, 2034
Principal amount by company:
Hawaiian Electric	$31.5 million
Hawaii Electric Light	$10 million
Maui Electric	$10 million

On July 18, 2019, the Department of Budget and Finance of the State of Hawaii (DBF) for the benefit of Hawaiian Electric and Hawaii Electric Light, issued, at par:



	Refunding Series 2019 Special Purpose Revenue Bonds
Aggregate principal amount	$150 million
Fixed coupon interest rate	3.20%
Maturity date	July 1, 2039
DBF loaned the proceeds to:
Hawaiian Electric	$90 million
Hawaii Electric Light	$60 million

On July 26, 2019, proceeds from the sale were applied to redeem at par, bonds previously issued by the DBF for the benefit of Hawaiian Electric and Hawaii Electric Light:



	Series 2009 Special Purpose Revenue Bonds Redeemed
Aggregate principal amount	$150 million
Fixed coupon interest rate	6.50%
Maturity date	July 1, 2039
Principal amount by company:
Hawaiian Electric	$90 million
Hawaii Electric Light	$60 million

On October 10, 2019, the DBF for the benefit of Hawaiian Electric, Hawaii Electric Light and Maui Electric, issued, at par:



	Series 2019 Special Purpose Revenue Bonds
Aggregate principal amount	$80 million
Fixed coupon interest rate	3.50%
Maturity date	October 1, 2049
DBF loaned the proceeds to:
Hawaiian Electric	$70 million
Hawaii Electric Light	$2.5 million
Maui Electric	$7.5 million

Proceeds will be used to finance capital expenditures, including reimbursements to the Companies for previously incurred capital expenditures. For Series 2019 Special Purpose Revenue Bonds (SPRBs), funds on deposit with trustee represent the undrawn proceeds from the issuance of the SPRBs and earn interest at market rates. These funds are available only to pay (or to reimburse) the Utilities for their capital expenditures.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Note 6 · Leases

The Company adopted ASU No. 2016-02 and related amendments on January 1, 2019, and used the effective date as the date of initial application. The Company elected the practical expedient package under which the Company did not reassess its prior conclusions about whether any expired or existing contracts are or contain leases, whether there is a change in lease classification for any expired or existing leases under the new standard, or whether there were initial direct costs for any existing leases that would be treated differently under the new standard. The Company elected the short-term lease recognition exemption for all of its leases that qualify, and accordingly, does not recognize lease liabilities and ROU assets for all leases that have lease terms that are 12 months or less. The amounts related to short-term leases are not material. The Company elected the practical expedient to not separate lease and non-lease components for its real estate and equipment and fossil fuel and renewable energy PPAs. The Company elected the practical expedient to not assess all existing land easements that were not previously accounted for in accordance with ASC 840.

The Company leases certain real estate and equipment for various terms under long-term operating lease agreements. The agreements expire at various dates through 2054 and provide for renewal options up to 10 years. The periods associated with the renewal options are excluded for the purpose of determining the lease term unless the exercise of the renewable option is reasonably certain. In the normal course of business, it is expected that many of these agreements will be replaced by similar agreements. Certain real estate leases require the Company to pay for operating expenses such as common area maintenance, real estate taxes and insurance.

Additionally, the Utilities contract with independent power producers to supply energy under long-term power purchase agreements. Certain PPAs are treated as operating leases under the new standard because the Company elected the practical expedient package under which prior conclusions about lease identification were not reassessed. PPAs generally include variable lease payments (e.g., payments based on kWh), and several as-available PPAs have variable-only payment terms. For PPAs with no minimum lease payments, the Utilities do not recognize any lease liabilities or ROU assets, and the related costs are reported as variable lease costs.

In August 2019, Hawaiian Electric entered into a lease agreement for a total office space of approximately 195,000 square feet in downtown Honolulu to lower costs and bring together office workers in separate leased buildings. The lease consists of two different phases with expected commencement dates of January 2020 and January 2021, respectively, and is an operating lease for a term of 12 years with various options to extend up to 10 years. Annual rent expense for each phase will be approximately $1.9 million and $1.7 million, respectively.

The Utilities’ lease payments for each operating lease agreement were discounted using its estimated unsecured borrowing rates for the appropriate term, reduced for the estimated impact of collateral. ASB’s lease payments for each operating lease agreement were discounted using Federal Home Loan Bank of Des Moines (FHLB) fixed rate advance rates, which are collateralized, for the appropriate term. The FHLB is the bank’s primary wholesale funding source and can provide borrowing rates for various terms starting at overnight borrowings to 30-year borrowing terms.

Amounts related to the Company’s total lease cost and cash flows arising from lease transaction are as follows:



	HEI consolidated						Hawaiian Electric consolidated
Three months ended September 30, 2019 (in thousands)	Other leases		PPAs classified as leases		Total		Other leases		PPAs classified as leases		Total
Operating lease cost	$	2,892	$	15,478	$	18,370	$	1,542	$	15,478	$	17,020
Variable lease cost	3,577		57,912		61,489		2,836		57,912		60,748
Total lease cost	$	6,469	$	73,390	$	79,859	$	4,378	$	73,390	$	77,768
Other information
Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases	$	2,687	$	16,795	$	19,482	$	1,455	$	16,795	$	18,250

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)



	HEI consolidated									Hawaiian Electric consolidated
Nine months ended September 30, 2019 (dollars in thousands)	Other leases			PPAs classified as leases			Total			Other leases			PPAs classified as leases			Total
Operating lease cost	$	8,632		$	46,434		$	55,066		$	4,551		$	46,434		$	50,985
Variable lease cost	9,777			143,177			152,954			7,686			143,177			150,863
Total lease cost	$	18,409		$	189,611		$	208,020		$	12,237		$	189,611		$	201,848
Other information
Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases	$	7,867		$	46,162		$	54,029		$	4,263		$	46,162		$	50,425
Weighted-average remaining lease term—operating leases (in years)	6.5			3.0			3.7			4.7			3.0			3.2
Weighted-average discount rate—operating leases	3.55		%	4.08		%	3.98		%	4.17		%	4.08		%	4.09		%

The following table summarizes the maturity of our operating lease liabilities as of September 30, 2019:



	HEI consolidated									Hawaiian Electric consolidated
(in millions)	Other leases			PPAs classified as leases			Total			Other leases			PPAs classified as leases			Total
2019 (remaining months)	$	3		$	17		$	20		$	2		$	17		$	19
2020	11			63			74			6			63			69
2021	9			63			72			5			63			68
2022	6			42			48			2			42			44
2023	4			—			4			2			—			2
2024	3			—			3			1			—			1
Thereafter	9			—			9			2			—			2
Total lease payments	45			185			230			20			185			205
Less: Imputed interest	(6		)	(11		)	(17		)	(2		)	(11		)	(13		)
Total present value of lease payments	$	39		$	174		$	213		$	18		$	174		$	192

The future minimum lease obligations under operating leases in effect as of December 31, 2018, having a term in excess of one year as determined prior to the adoption of ASC 842 are as follows:



	HEI consolidated						Hawaiian Electric consolidated
(in millions)	Other leases		PPAs classified as leases		Total		Other leases		PPAs classified as leases		Total
2019	$	11	$	63	$	74	$	6	$	63	$	69
2020	9		63		72		6		63		69
2021	8		63		71		5		63		68
2022	5		42		47		2		42		44
2023	4		—		4		2		—		2
Thereafter	12		—		12		3		—		3
Total lease payments	$	49	$	231	$	280	$	24	$	231	$	255

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Note 7 · Shareholders’ equity

Accumulated other comprehensive income/(loss).Changes in the balances of each component of accumulated other comprehensive income/(loss) (AOCI) were as follows:



	HEI Consolidated												Hawaiian Electric Consolidated
(in thousands)	Net unrealized gains (losses) on securities			Unrealized gains (losses) on derivatives			Retirement benefit plans			AOCI			AOCI-Retirement benefit plans
Balance, December 31, 2018	$	(24,423	)	$	(436	)	$	(25,751	)	$	(50,610	)	$	99
Current period other comprehensive income (loss)	27,368			(1,663		)	532			26,237			73
Balance, September 30, 2019	$	2,945		$	(2,099	)	$	(25,219	)	$	(24,373	)	$	172
Balance, December 31, 2017	$	(14,951	)	$	—		$	(26,990	)	$	(41,941	)	$	(1,219	)
Current period other comprehensive income (loss)	(22,768		)	—			1,581			(21,187		)	85
Balance, September 30, 2018	$	(37,719	)	$	—		$	(25,409	)	$	(63,128	)	$	(1,134	)

HEI Consolidated Hawaiian Electric Consolidated
(in thousands) Net unrealized gains (losses) on securities Unrealized gains (losses) on derivatives Retirement benefit plans AOCI Unrealized gains (losses) on derivatives Retirement benefit plans AOCI
Balance, December 31, 2017 $ (14,951 ) $ —
$ (26,990 ) $ (41,941 ) $ —
$ (1,219 ) $ (1,219 )
Current period other comprehensive income (loss) (22,768 ) —
1,581
(21,187 ) —
85
85
Balance, September 30, 2018 $ (37,719 ) $ —
$ (25,409 ) $ (63,128 ) $ —
$ (1,134 ) $ (1,134 )
Balance, December 31, 2016 $ (7,931 ) $ (454 ) $ (24,744 ) $ (33,129 ) $ (454 ) $ 132
$ (322 )
Current period other comprehensive income 2,452
454
1,003
3,909
454
67
521
Balance, September 30, 2017 $ (5,479 ) $ —
$ (23,741 ) $ (29,220 ) $ —
$ 199
$ 199

Reclassifications out of AOCI were as follows:



	Amount reclassified from AOCI
	Three months ended September 30						Nine months ended September 30						Affected line item in the
(in thousands)	2019			2018			2019			2018			Statements of Income / Balance Sheets
HEI consolidated
Net realized gains on securities included in net income	$	(478	)	$	—		$	(478	)	$	—		Revenues-bank (gains on sale of investment securities, net)
Retirement benefit plans:
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost	2,615			5,259			7,621			15,755			See Note 9 for additional details
Impact of D&Os of the PUC included in regulatory assets	(2,493		)	(4,725		)	(7,089		)	(14,174		)	See Note 9 for additional details
Total reclassifications	$	(356	)	$	534		$	54		$	1,581
Hawaiian Electric consolidated
Retirement benefit plans:
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost	$	2,519		$	4,753		$	7,162		$	14,259		See Note 9 for additional details
Impact of D&Os of the PUC included in regulatory assets	(2,493		)	(4,725		)	(7,089		)	(14,174		)	See Note 9 for additional details
Total reclassifications	$	26		$	28		$	73		$	85

Amount reclassified from AOCI
Three months ended September 30 Nine months ended September 30 Affected line item in the
(in thousands) 2018 2017 2018 2017 Statements of Income / Balance Sheets
HEI consolidated
Derivatives qualifying as cash flow hedges:

Window forward contracts $ —
$ —
$ —
$ 454
Property, plant and equipment-electric utilities
Retirement benefit plans:

Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost 5,259
3,942
15,755
11,793
See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets (4,725 ) (3,596 ) (14,174 ) (10,790 ) See Note 8 for additional details
Total reclassifications $ 534
$ 346
$ 1,581
$ 1,457

Hawaiian Electric consolidated
Derivatives qualifying as cash flow hedges:
Window forward contracts $ —
$ —
$ —
$ 454
Property, plant and equipment
Retirement benefit plans:

Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost 4,753
3,618
14,259
10,857
See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets (4,725 ) (3,596 ) (14,174 ) (10,790 ) See Note 8 for additional details
Total reclassifications $ 28
$ 22
$ 85
$ 521

~~Note 7 · Revenues~~

~~Adoption of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”~~ In the first quarter of 2018, the Company and Hawaiian Electric adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with accounting standards in effect for those periods. The adoption of Topic 606 had no significant impact on the timing or pattern of revenue recognition for the Company or Hawaiian Electric. No practical expedients were used by the Company or Hawaiian Electric in the adoption of ASU No. 2014-09.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Note 8 · Revenues

Revenue from contracts with customers. ~~The revenues subject to Topic 606 include the Utilities’ electric energy sales revenue and the Utilities’ and ASB’s transaction fees, as further described below.~~

~~Electric Utilities~~.

~~Electric energy sales and fees under tariff~~.Electric energy sales represent revenues from the generation and transmission of electricity to customers and utility fees include transaction-based fees associated with the delivery of electricity provided by the Utilities under tariffs approved by the PUC.

~~Electric energy sales under tariff~~- Transaction pricing for electricity is determined and approved by the PUC for each rate class and includes revenues from the base electric charges, which are composed of (1) the customer, demand, energy, and minimum charges, and (2) the power factor, service voltage, and other adjustments as provided in each rate and rate rider schedule. The Utilities satisfy performance obligations over time, i.e., the Utilities generate and transfer control of the electricity over time as the customer simultaneously receives and consumes the benefits provided by the Utilities' performance. Payments from customers are generally due within 30 days from the end of the billing period.

~~Utility fees~~ - Pricing for transaction fees associated with electric service are set and approved by the PUC. Adjustments to the fee schedules are either requested by the Utilities during ratemaking years or during off cycle periods as needed. Such transaction fees include connection fees, late payment fees and other one-time transaction fees. These transaction-based fees are recognized at the point in time when the transaction has occurred and the performance obligation satisfied (e.g., connection fees are recognized when an electric connection is completed).

~~Bank~~.

~~Bankfees.~~ Bank fees are primarily transaction-based and are recognized when the transaction has occurred and the performance obligation satisfied. From time to time, customers will request a fee waiver and ASB may grant reversals of fees. Revenues are not recorded for the estimated amount of fee reversals for each period. Under the new standard, certain fees paid to third parties that were previously recognized as a component of noninterest expense are now netted with fee income. The change in presentation will have no effect on the reported amount of operating income.

~~Fees from other financial services~~ - These fees primarily include debit card interchange income and fees, automated teller machine fees, credit card interchange income and fees, check ordering fees, wire fees, safe deposit rental fees, corporate/business fees, merchant income, online banking fees and international banking fees. Amounts paid to third parties for payment network expenses are included in this financial statement caption in ASB’s Statements of Income Data (in Revenues—Bank financial statement caption of HEI’s Consolidated Statements of Income). Previously, these expenses were recorded in the other expense financial statement caption of ASB’s Statements of Income Data (in Expenses—Bank financial statement caption of HEI’s Consolidated Statements of Income).

~~Fee income on deposit liabilities~~ ~~- These fees primarily include “not sufficient funds” fees, monthly deposit account service charge fees, commercial account analysis fees and other deposit fees.~~

~~Fee income on other financial products~~ - These fees primarily include commission income from the sales of annuity, mutual fund, and life insurance products. In 2017, ASB began offering a fee-based, managed account product in which income is based on a percentage of assets under management. ASB satisfies its performance obligations under the managed account arrangement over time, and consequently, fees for assets under management are recognized over time as the customer simultaneously receives and consumes the benefit of asset management services. Fees recognized to date from the managed account product were minimal.

~~Revenues from other sources.~~ ~~Revenues from other sources not subject to Topic 606 are accounted for as follows:~~

~~Electric Utilities~~.

~~Regulatory revenues. Regulatory revenues primarily consist of revenues from decoupling mechanism, cost recovery surcharges and the Tax Act adjustments.~~

~~Decoupling mechanism~~ - Under the decoupling mechanism, the Utilities are allowed to recover or refund the difference between actual revenue and the target revenue as determined by the PUC. These adjustments will be reflected in tariffs in future periods.

~~Cost recovery surcharges~~- For the timely recovery of additional costs incurred, and reconciliation of costs and expenses included in tariffed rates, the Utilities recognize revenues under surcharge mechanisms approved by the PUC. These will be reflected in tariffs in future periods (e.g., ECAC and PPAC).

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

~~Tax Act adjustments~~ ~~- These represent adjustments to revenues for the amounts included in tariffed revenues that will be returned to customers as a result of the Tax Act.~~

Since revenue adjustments discussed above resulted from either agreements with the PUC or change in tax law, rather than contracts with customers, they are not subject to the scope of Topic 606. See Notes 1, 3 and 10 to the audited consolidated financial statements in the Company’s Form 10-K for the year ended December 31, 2017. The Utilities have elected to present these revenue adjustments on a gross basis, which results in the amounts being billed to customers presented in revenues from contracts with customers and the amortization of the related regulatory asset/liability as revenues from other sources. Depending on whether the previous deferral balance being amortized was a regulatory asset or regulatory liability, and depending on the size and direction of the current year deferral of surcharges and/or refunds to customers, it could result in negative regulatory revenue during the year.

~~Bank~~.

~~Interest and dividend income. Interest and fees on loans are recognized in accordance with ASC Topic 310,~~ ~~Receivables, including the related allowance for loan losses. Interest and dividends on investment securities are recognized in accordance with ASC Topic 320,~~ ~~Investments-Debt and Equity Securities.~~ ~~See Notes 1 and 4 to the audited consolidated financial statements in the Company’s Form 10-K for the year ended December 31, 2017.~~

~~Other bank noninterest income. Other bank noninterest income primarily consists of mortgage banking income and bank-owned life insurance income.~~

~~Mortgage banking income~~ ~~- Mortgage banking income consists primarily of realized and unrealized gains on sale of loans accounted for pursuant to ASC Topic 860,~~ ~~Transfers and Servicing. Interest rate lock commitments and forward loan sales are considered derivatives and are accounted pursuant to ASC Topic 815,~~ ~~Derivatives and Hedging~~.

~~Bank-Owned Life Insurance (BOLI)~~ - ~~The recognition of BOLI cash surrender value does not represent a contract with a customer and is accounted for in accordance with Emerging Issues Task Force Issue 06-05,~~ ~~Accounting for Purchases of Life Insurance-Determining the Amount that Could be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance~~.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

~~Revenue disaggregation.~~ The following tables ~~disaggregates~~disaggregate revenues by major source, timing of revenue recognition, and segment:



	Three months ended September 30, 2019										Nine months ended September 30, 2019
(in thousands)	Electric utility			Bank		Other		Total			Electric utility			Bank		Other		Total
Revenues from contracts with customers
Electric energy sales - residential	$	230,051		$	—	$	—	$	230,051		$	601,664		$	—	$	—	$	601,664
Electric energy sales - commercial	230,411			—		—		230,411			635,097			—		—		635,097
Electric energy sales - large light and power	248,457			—		—		248,457			679,252			—		—		679,252
Electric energy sales - other	4,081			—		—		4,081			11,933			—		—		11,933
Bank fees	—			12,111		—		12,111			—			34,976		—		34,976
Total revenues from contracts with customers	713,000			12,111		—		725,111			1,927,946			34,976		—		1,962,922
Revenues from other sources
Regulatory revenue	(30,800		)	—		—		(30,800		)	(44,953		)	—		—		(44,953		)
Bank interest and dividend income	—			66,859		—		66,859			—			201,502		—		201,502
Other bank noninterest income	—			4,231		—		4,231			—			11,462		—		11,462
Other	6,130			—		4		6,134			17,616			—		86		17,702
Total revenues from other sources	(24,670		)	71,090		4		46,424			(27,337		)	212,964		86		185,713
Total revenues	$	688,330		$	83,201	$	4	$	771,535		$	1,900,609		$	247,940	$	86	$	2,148,635
Timing of revenue recognition
Services/goods transferred at a point in time	$	—		$	12,111	$	—	$	12,111		$	—		$	34,976	$	—	$	34,976
Services/goods transferred over time	713,000			—		—		713,000			1,927,946			—		—		1,927,946
Total revenues from contracts with customers	$	713,000		$	12,111	$	—	$	725,111		$	1,927,946		$	34,976	$	—	$	1,962,922



	Three months ended September 30, 2018										Nine months ended September 30, 2018
(in thousands)	Electric utility			Bank		Other		Total			Electric utility			Bank		Other		Total
Revenues from contracts with customers
Electric energy sales - residential	$	222,196		$	—	$	—	$	222,196		$	586,002		$	—	$	—	$	586,002
Electric energy sales - commercial	229,476			—		—		229,476			624,643			—		—		624,643
Electric energy sales - large light and power	242,457			—		—		242,457			649,454			—		—		649,454
Electric energy sales - other	4,296			—		—		4,296			12,324			—		—		12,324
Bank fees	—			11,743		—		11,743			—			34,797		—		34,797
Total revenues from contracts with customers	698,425			11,743		—		710,168			1,872,423			34,797		—		1,907,220
Revenues from other sources
Regulatory revenue	(13,572		)	—		—		(13,572		)	(13,465		)	—		—		(13,465		)
Bank interest and dividend income	—			65,185		—		65,185			—			190,448		—		190,448
Other bank noninterest income	—			3,568		—		3,568			—			7,774		—		7,774
Other	2,556			—		143		2,699			7,004			—		218		7,222
Total revenues from other sources	(11,016		)	68,753		143		57,880			(6,461		)	198,222		218		191,979
Total revenues	$	687,409		$	80,496	$	143	$	768,048		$	1,865,962		$	233,019	$	218	$	2,099,199
Timing of revenue recognition
Services/goods transferred at a point in time	$	832		$	11,743	$	—	$	12,575		$	2,380		$	34,797	$	—	$	37,177
Services/goods transferred over time	697,593			—		—		697,593			1,870,043			—		—		1,870,043
Total revenues from contracts with customers	$	698,425		$	11,743	$	—	$	710,168		$	1,872,423		$	34,797	$	—	$	1,907,220

Three months ended September 30, 2018 Nine months ended September 30, 2018
Electric utility Bank Other Total Electric utility Bank Other Total
(in thousands)

Revenues from contracts with customers
Electric energy sales - residential $ 222,196
$ —
$ —
$ 222,196
$ 586,002
$ —
$ —
$ 586,002
Electric energy sales - commercial 229,476
—
—
229,476
624,643
—
—
624,643
Electric energy sales - large light and power 242,457
—
—
242,457
649,454
—
—
649,454
Electric energy sales - other 3,464
—
—
3,464
9,944
—
—
9,944
Utility fees 832
—
—
832
2,380
—
—
2,380
Bank fees —
11,743
—
11,743
—
34,797
—
34,797
Total revenues from contracts with customers 698,425
11,743
—
710,168
1,872,423
34,797
—
1,907,220
Revenues from other sources
Regulatory revenue (13,572 ) —
—
(13,572 ) (13,465 ) —
—
(13,465 )
Bank interest and dividend income —
65,185
—
65,185
—
190,448
—
190,448
Other bank noninterest income —
3,568
—
3,568
—
7,774
—
7,774
Other 2,556
—
143
2,699
7,004
—
218
7,222
Total revenues from other sources (11,016 ) 68,753
143
57,880
(6,461 ) 198,222
218
191,979
Total revenues $ 687,409
$ 80,496
$ 143
$ 768,048
$ 1,865,962
$ 233,019
$ 218
$ 2,099,199
Timing of revenue recognition
Services/goods transferred at a point in time $ 832
$ 11,743
$ —
$ 12,575
$ 2,380
$ 34,797
$ —
$ 37,177
Services/goods transferred over time 697,593
—
—
697,593
1,870,043
—
—
1,870,043
Total revenues from contracts with customers $ 698,425
$ 11,743
$ —
$ 710,168
$ 1,872,423
$ 34,797
$ —
$ 1,907,220

There are no material contract assets or liabilities associated with revenues from contracts with customers existing at the beginning ~~or at the end~~ of the ~~nine months ended~~period or as of September 30, ~~2018.~~2019. Accounts receivable and unbilled revenues related to contracts with customers represent an unconditional right to consideration since all performance obligations have been satisfied. These amounts are disclosed as accounts receivable and unbilled revenues, net on HEI’s condensed consolidated balance sheets and customer accounts receivable, net and accrued unbilled revenues, net on Hawaiian Electric’s condensed consolidated balance sheets.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

As of September 30, ~~2018,~~2019, the Company had no material remaining performance obligations due to the nature of the Company’s contracts with its customers. For the Utilities, performance obligations are fulfilled as electricity is delivered to customers. For ASB, fees are recognized when a transaction is completed.

Note 89 · Retirement benefits

Defined benefit pension and other postretirement benefit plans information. For the first nine months of ~~2018~~2019, the Company contributed $3836 million ($3736 million by the Utilities) to its pension and other postretirement benefit plans, compared to $5038 million ($4937 million by the Utilities) in the first nine months of ~~2017.~~2018. The Company’s current estimate of total contributions to its pension and other postretirement benefit plans in ~~2018~~2019 is ~~$38~~$49 million ($3748 million by the Utilities, $1 million by HEI and nil by ASB), compared to $6739 million ($6638 million by the Utilities, $1 million by HEI and nil by ASB) in ~~2017~~2018. In addition, the Company expects to pay directly $3 million ($2 million by the Utilities) of benefits in 2019, compared to $2 million ($1 million by the Utilities) ~~of benefits in~~ ~~2018, compared to $1 million ($0.5 million by the Utilities)~~ paid in ~~2017~~2018.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

The components of ~~NPPC~~net periodic pension costs (NPPC) and ~~NPBC~~net periodic benefit costs (NPBC) for HEI consolidated and Hawaiian Electric consolidated were as follows:



	Three months ended September 30												Nine months ended September 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
HEI consolidated
Service cost	$	15,800		$	17,223		$	573		$	680		$	46,564		$	51,764		$	1,656		$	2,041
Interest cost	21,150			19,340			2,006			1,986			63,216			58,033			6,000			5,947
Expected return on plan assets	(27,991		)	(27,237		)	(3,101		)	(3,224		)	(83,988		)	(81,715		)	(9,273		)	(9,683		)
Amortization of net prior service gain	(10		)	(11		)	(451		)	(451		)	(32		)	(32		)	(1,355		)	(1,354		)
Amortization of net actuarial (gains) losses	3,989			7,527			(3		)	25			11,667			22,556			(10		)	71
Net periodic pension/benefit cost (return)	12,938			16,842			(976		)	(984		)	37,427			50,606			(2,982		)	(2,978		)
Impact of PUC D&Os	11,554			7,785			821			953			36,111			17,621			2,443			3,048
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)	$	24,492		$	24,627		$	(155	)	$	(31	)	$	73,538		$	68,227		$	(539	)	$	70
Hawaiian Electric consolidated
Service cost	$	15,344		$	16,840		$	568		$	676		$	45,346		$	50,520		$	1,643		$	2,028
Interest cost	19,560			17,824			1,920			1,907			58,388			53,471			5,755			5,721
Expected return on plan assets	(26,146		)	(25,593		)	(3,064		)	(3,178		)	(78,474		)	(76,777		)	(9,135		)	(9,534		)
Amortization of net prior service (gain) cost	2			2			(451		)	(451		)	6			6			(1,353		)	(1,353		)
Amortization of net actuarial loss	3,841			6,826			—			25			10,993			20,477			—			74
Net periodic pension/benefit cost (return)	12,601			15,899			(1,027		)	(1,021		)	36,259			47,697			(3,090		)	(3,064		)
Impact of PUC D&Os	11,554			7,785			821			953			36,111			17,621			2,443			3,048
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)	$	24,155		$	23,684		$	(206	)	$	(68	)	$	72,370		$	65,318		$	(647	)	$	(16	)

Three months ended September 30 Nine months ended September 30
Pension benefits Other benefits Pension benefits Other benefits
(in thousands) 2018 2017 2018 2017 2018 2017 2018 2017
HEI consolidated
Service cost $ 17,223
$ 16,271
$ 680
$ 843
$ 51,764
$ 48,635
$ 2,041
$ 2,530
Interest cost 19,340
20,304
1,986
2,363
58,033
60,881
5,947
7,089
Expected return on plan assets (27,237 ) (25,689 ) (3,224 ) (3,078 ) (81,715 ) (77,056 ) (9,683 ) (9,248 )
Amortization of net prior service gain (11 ) (14 ) (451 ) (448 ) (32 ) (41 ) (1,354 ) (1,345 )
Amortization of net actuarial loss 7,527
6,638
25
283
22,556
19,858
71
848
Net periodic pension/benefit cost (return) 16,842
17,510
(984 ) (37 ) 50,606
52,277
(2,978 ) (126 )
Impact of PUC D&Os 7,785
(4,534 ) 953
346
17,621
(14,557 ) 3,048
1,019
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) $ 24,627
$ 12,976
$ (31 ) $ 309
$ 68,227
$ 37,720
$ 70
$ 893
Hawaiian Electric consolidated
Service cost $ 16,840
$ 15,764
$ 676
$ 839
$ 50,520
$ 47,294
$ 2,028
$ 2,515
Interest cost 17,824
18,659
1,907
2,279
53,471
55,974
5,721
6,837
Expected return on plan assets (25,593 ) (23,973 ) (3,178 ) (3,037 ) (76,777 ) (71,919 ) (9,534 ) (9,110 )
Amortization of net prior service loss (gain) 2
2
(451 ) (451 ) 6
6
(1,353 ) (1,353 )
Amortization of net actuarial loss 6,826
6,098
25
275
20,477
18,294
74
826
Net periodic pension/benefit cost (return) 15,899
16,550
(1,021 ) (95 ) 47,697
49,649
(3,064 ) (285 )
Impact of PUC D&Os 7,785
(4,534 ) 953
346
17,621
(14,557 ) 3,048
1,019
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) $ 23,684
$ 12,016
$ (68 ) $ 251
$ 65,318
$ 35,092
$ (16 ) $ 734

HEI consolidated recorded retirement benefits expense of $44 million ($43 ~~million~~ ~~($40~~ million by the Utilities) and $2543 million ($2240 million by the Utilities) in the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively, and charged the remaining net periodic benefit cost primarily to electric utility plant.

The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, these retirement benefit costs that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will be amortized over 5 years beginning with the issuance of the PUC’s D&O in the respective utility’s next rate case.

Defined contribution plans information. For the first nine months of ~~2018~~2019 and ~~2017,~~2018, the Company’s expenses for its defined contribution pension plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan were $5.1 million and $4.8 million ~~and~~ ~~$5.1 million~~, respectively, and cash contributions were $~~5.9~~6.0 million and ~~$5.0~~$5.9 million,, respectively. For the first nine months of ~~2018~~2019 and ~~2017,~~2018, the Utilities’ expenses for its defined contribution pension plan under the HEIRSP were ~~$1.7~~$1.9 million and ~~$1.4~~$1.7 million, respectively, and cash contributions were $1.9 million and $1.7 million, ~~and $1.4 million,~~ respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Note 9 10 · Share-based compensation

Under the 2010 Equity and Incentive Plan, as amended, HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan (original EIP) was amended and restated effective March 1, 2014 (EIP) and an additional 1.5 million shares were added to the shares available for issuance under these programs.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

As of September 30, ~~2018,~~2019, approximately 3.2 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy minimum statutory tax liabilities relating to EIP awards, including an estimated ~~0.6~~0.8 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels).

Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. On June 26, 2019, an additional 300,000 shares were made available for issuance under the 2011 Director Plan. As of September 30, ~~2018,~~2019, there were ~~46,607~~311,027 shares remaining available for future issuance under the 2011 Director Plan.

Share-based compensation expense and the related income tax benefit were as follows:


	Three months ended September 30				Nine months ended September 30				Three months ended September 30				Nine months ended September 30
(in millions)	2018		2017		2018		2017		2019		2018		2019		2018
HEI consolidated
Share-based compensation expense ¹	$	1.5	$	1.1	$	5.9	$	4.4	$	2.3	$	1.5	$	8.1	$	5.9
Income tax benefit	0.2		0.4		0.9		1.5		0.3		0.2		1.2		0.9
Hawaiian Electric consolidated
Share-based compensation expense ¹	0.6		0.4		2.1		1.6		0.8		0.6		2.6		2.1
Income tax benefit	0.1		0.2		0.4		0.6		0.1		0.1		0.5		0.4


¹	For the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the Company has not capitalized any share-based compensation.

Stock awards. HEI granted HEI common stock to nonemployee directors ~~of HEI, Hawaiian Electric and ASB~~ under the 2011 Director Plan as follows:



	Three months ended September 30				Nine months ended September 30
(dollars in millions)	2019		2018		2019		2018
Shares granted	—		—		35,580		38,821
Fair value	$	—	$	—	$	1.5	$	1.3
Income tax benefit	—		—		0.4		0.3

Three months ended September 30 Nine months ended September 30
(dollars in millions) 2018 2017 2018 2017
Shares granted —
—
38,821
35,770
Fair value $ —
$ —
$ 1.3
$ 1.2
Income tax benefit —
—
0.3
0.5

The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI Common Stock on the grant date.

Restricted stock units. Information about HEI’s grants of restricted stock units was as follows:


	Three months ended September 30										Nine months ended September 30										Three months ended September 30										Nine months ended September 30
	2018					2017					2018					2017					2019					2018					2019					2018
	Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	200,856			$	33.03	206,483			$	31.50	197,047			$	31.53	220,683			$	29.57	208,625			$	35.28	200,856			$	33.03	200,358			$	33.05	197,047			$	31.53
Granted	1,789			35.61		—			—		93,853			34.12		97,873			33.47		1,006			44.16		1,789			35.61		95,565			37.75		93,853			34.12
Vested	—			—		(687		)	24.48		(75,683		)	30.56		(89,681		)	28.84		(101		)	36.27		—			—		(76,813		)	32.61		(75,683		)	30.56
Forfeited	(2,287		)	32.83		—			—		(14,859		)	32.35		(23,079		)	31.50		(2,889		)	35.44		(2,287		)	32.83		(12,469		)	34.20		(14,859		)	32.35
Outstanding, end of period	200,358			$	33.05	205,796			$	31.53	200,358			$	33.05	205,796			$	31.53	206,641			$	35.32	200,358			$	33.05	206,641			$	35.32	200,358			$	33.05
Total weighted-average grant-date fair value of shares granted (in millions)	$	0.1				$	—				$	3.2				$	3.3				$	—				$	0.1				$	3.6				$	3.2


(1)	Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

For the first nine months of ~~2018~~2019 and ~~2017,~~2018, total restricted stock units and related dividends that vested had a fair value of $3.2 million and $2.7 million ~~and~~ ~~$3.4 million~~, respectively, and the related tax benefits were $0.5 million and $0.4 million ~~and~~ ~~$1.1 million~~, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

As of September 30, ~~2018,~~2019, there was ~~$4.8~~$5.4 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of ~~2.6~~2.7 years.

Long-term incentive plan payable in stock. The 2017-2019, 2018-2020 and ~~2018-2020~~2019-2021 long-term incentive plans (LTIP) provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

made, subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies from 0% to 200% of the number of target shares, depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Edison Electric Institute Index over the relevant three-year period. The other performance condition goals relate to ~~EPS~~earnings per share (EPS) growth, return on average common equity, ~~(ROACE)~~Hawaiian Electric’s net income and ASB’s efficiency ratio. ~~The 2016-2018 LTIP provides for performance awards payable in cash, and thus is not included in the tables below.~~

LTIP linked to TSR. Information about HEI’s LTIP grants linked to TSR was as follows:


	Three months ended September 30									Nine months ended September 30										Three months ended September 30										Nine months ended September 30
	2018					2017				2018					2017					2019					2018					2019					2018
	Shares			(1)		Shares		(1)		Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	66,177			$	38.82	33,770		$	39.51	32,904			$	39.51	83,106			$	22.95	98,311			$	39.61	66,177			$	38.82	65,578			$	38.81	32,904			$	39.51
Granted	878			38.20		—		—		37,819			38.21		37,204			39.51		568			41.07		878			38.20		35,215			41.07		37,819			38.21
Vested (issued or unissued and cancelled)	—			—		—		—		—			—		(83,106		)	22.95		—			—		—			—		—			—		—			—
Forfeited	(1,490		)	38.85		—		—		(5,158		)	38.84		(3,434		)	39.51		(2,477		)	39.64		(1,490		)	38.85		(4,391		)	39.19		(5,158		)	38.84
Outstanding, end of period	65,565			$	38.81	33,770		$	39.51	65,565			$	38.81	33,770			$	39.51	96,402			$	39.62	65,565			$	38.81	96,402			$	39.62	65,565			$	38.81
Total weighted-average grant-date fair value of shares granted (in millions)	$	—				$	—			$	1.4				$	1.5				$	—				$	—				$	1.4				$	1.4

The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information for the common shares of HEI and its peers for the period from the beginning of the performance period to the grant date and estimated future stock volatility and dividends of HEI and its peers over the remaining three-year performance period. The expected stock volatility assumptions for HEI and its peer group were based on the three-year historic stock volatility, and the annual dividend yield assumptions were based on dividend yields calculated on the basis of daily stock prices over the same three-year historical period.

The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the resulting fair value of LTIP awards granted:



	2019		2018
Risk-free interest rate	2.48	%	2.29	%
Expected life in years	3		3
Expected volatility	15.8	%	17.0	%
Range of expected volatility for Peer Group	15.0% to 73.2%		15.1% to 26.2%
Grant date fair value (per share)	$41.07		$38.20

As of September 30, ~~2018,~~2019, there was ~~$1.5~~$1.7 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TSR. The cost is expected to be recognized over a weighted-average period of ~~1.8~~1.3 years.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

LTIP awards linked to other performance conditions. Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:

As of September 30, ~~2018,~~2019, there was ~~$5.4~~$6.1 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TSR. The cost is expected to be recognized over a weighted-average period of ~~1.8 years~~.1.2 years.

~~Staff Accounting Bulletin No. 118 (SAB No. 118).~~ On December 22, 2017, the SEC staff issued SAB No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In 2017, the Company calculated its best estimate of the provision for income tax expense, in accordance with its understanding of the law and available guidance. In the third quarter of 2018, adjustments, largely relating to Treasury’s depreciation regulation guidance issued in 2018 were made to the provisional tax impacts. The adjustments were due primarily to the application of 50% bonus depreciation to 2017 fourth quarter plant additions, resulting in additional regulatory liabilities totaling $11.3 million. The Company will continue to monitor the provisional impacts and update when and if additional information is received as a result of changes in the Company’s and Utilities’ interpretations and assumptions, the issuance of Internal Revenue Service and Joint Committee on Taxation guidance, and actions the Company and Utilities may take as a result of the Tax Act. The provisional tax impacts will be finalized by the end of 2018.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

Common stock issued (gross) for director and executive/management compensation (financing)¹

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Note 1213 ·Fair value measurements

Fair value measurement and disclosure valuation methodology. The following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not carried at fair value:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

~~Window forward contracts~~. The estimated fair value of the Utilities’ window forward contracts was obtained from a third-party financial services provider based on the effective exchange rate offered for the foreign currency denominated transaction. Window forward contracts are classified as Level 2 measurements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

The following table presents the carrying or notional amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments. For stock in Federal Home Loan Bank, the carrying amount is a reasonable estimate of fair value because it can only be redeemed at par. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings and money market deposits, the carrying amount is a reasonable estimate of fair value as these liabilities have no stated maturity.

for identical assets

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)

for identical assets

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~- continued(Unaudited)~~

Interest rate lock commitments (bank segment)¹

Forward commitments (bank segment)¹

Window forward contracts (electric utility segment)²

Interest rate lock commitments (bank segment) ¹

Forward commitments (bank segment) ¹

Window forward contracts (electric utility segment)²

Interest rate swap (Other segment)²

² Derivatives are included in ~~regulatory assets and/or~~other liabilities in the balance sheets.

There were no transfers of financial assets and liabilities between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, ~~2018.~~2019.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)



			Fair value measurements
(in thousands)	Balance		Level 1		Level 2		Level 3
September 30, 2019
Loans	$	3,911	$	—	$	—	$	3,911
December 31, 2018
Loans	77		—		—		77
Real estate acquired in settlement of loans	186		—		—		186

For nine months ended September 30,~~2018~~2019 and ~~2017,~~2018, there were no0 adjustments to fair value for ASB’s loans held for sale.

Significant unobservable

input value ⁽¹⁾

(1) Represent percent of outstanding principal balance.

(2) N/A - Not applicable. There is one ~~loan~~asset in each fair value measurement type.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion updates “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in HEI’s and Hawaiian ~~Electric��s 2017~~Electric’s 2018 Form 10-K and should be read in conjunction with such discussion and the ~~2017~~2018 annual consolidated financial statements of HEI and Hawaiian Electric and notes thereto included in HEI’s and Hawaiian Electric’s ~~2017~~2018 Form 10-K, as well as the quarterly (as of and for the three and nine months ended September 30, ~~2018)~~2019) condensed consolidated financial statements and notes thereto included in this Form 10-Q.

HEI consolidated

RESULTS OF OPERATIONS

(in thousands, except per Three months ended September 30 %
share amounts) 2018 2017 change Primary reason(s)*
Revenues $ 768,048
$ 673,185
14
Increases for the electric utility and bank segments
Operating income 98,064
111,473
(12 ) Decrease for the electric utility segment, partly offset by increase for the bank segment and lower operating losses for the “other” segment
Net income for common stock 65,900
60,073
10
Higher net income at the electric utility and bank segments. See below for effective tax rate explanation.
Basic earnings per common share $ 0.61
$ 0.55
11
Higher net income
Weighted-average number of common shares outstanding 108,879
108,786
—
Issuances of shares under compensation stock plans.

(in thousands, except per Nine months ended September 30 %
share amounts) 2018 2017 change Primary reason(s)*
Revenues $ 2,099,199
$ 1,897,028
11
Increases for the electric utility and bank segments
Operating income 248,752
259,013
(4 ) Decrease for the electric utility segment, partly offset by increase for the bank segment and lower operating losses for the “other” segment
Net income for common stock 152,201
132,927
14
Higher net income at the electric utility and bank segments, partly offset by higher net losses at the “other” segment. See below for effective tax rate explanation.
Basic earnings per common share $ 1.40
$ 1.22
15
Higher net income
Weighted-average number of common shares outstanding 108,847
108,737
—
Issuances of shares under compensation and director stock plans.



	Three months ended September 30, 2019				%
(in thousands)	2019		2018		change		Primary reason(s)*
Revenues	$	771,535	$	768,048	—		Increases for the electric utility and bank segments
Operating income	97,308		98,064		(1	)	Decrease for electric utility segment, partly offset by an increase for the bank segment
Net income for common stock	63,419		65,900		(4	)	Lower net income at electric utility segment and higher net losses at the “other” segment, partly offset by higher net income at the bank segment. See below for effective tax rate explanation.



	Nine months ended September 30, 2019				%
(in thousands)	2019		2018		change	Primary reason(s)*
Revenues	$	2,148,635	$	2,099,199	2	Increases for the electric utility and bank segments
Operating income	247,879		248,752		—	Decrease for bank segment and higher operating losses for the “other” segment, partly offset by an increase for the electric utility segment
Net income for common stock	151,619		152,201		—	Higher net losses at the “other” segment, partly offset by higher net income at the electric utility segment. Bank segment was comparable between periods.


*	Also, see segment discussions which follow.

The Company’s effective tax rates ~~(combined federal and state income tax rates)~~ for the third quarters of 2019 and 2018 were 19% and ~~2017 were~~ 14% ~~and 36%~~, respectively. The Company’s effective tax rates for the first nine months of ~~2018~~2019 and ~~2017~~2018 were 19% ~~and 35%, respectively.~~for each period. The effective tax ~~rates were lower for~~rate was higher in the ~~three and nine months ended September 30, 2018~~third quarter of 2019, compared to the same ~~periods~~period in ~~2017~~2018 due primarily to ~~the provision in the Tax Act that lowered the federal income tax rate from 35% to 21% and the related amortization of excess deferred income taxes. In addition,~~ certain ~~tax~~ return adjustments ~~most notably an increased pension deduction made~~recorded in ~~conjunction~~2018 relating to the benefit associated with ~~the filing of~~additional tax deductions taken in the Company’s 2017 tax returns ~~contributed to the lower effective tax rate due to the additional tax benefits realized that were associated~~in conjunction with the rate ~~differential. The lower tax rate was partially offset by lower excess tax benefits associated with share-based awards~~differential provided in the ~~first nine months of 2018 as compared to the same period of~~ 2017 ~~and other~~ Tax Act ~~changes (the non-deductibility of excess executive compensation and various fringe benefit costs and loss~~offset, in part, by higher amortization in 2019 of the ~~domestic production activities deduction).~~

~~HEI’s consolidated ROACE was 8.7% for~~Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the ~~twelve months ended September 30, 2018 and 8.5% for the twelve months ended September 30, 2017.~~

~~Dividends.~~ The payout ratios for the first nine months of 2018 and full year 2017 were 67% and 82%, respectively. HEI currently expects to maintain its dividend at its present level; however, the HEI Board of Directors evaluates the dividend

~~quarterly and considers many factors~~Tax Act’s decrease in ~~the evaluation including, but not limited to, the Company’s results of operations, the long-term prospects for the Company and current and expected future economic conditions.~~federal income tax rate.

Economic conditions.

Note: The statistical data in this section is from public third-party sources that management believes to be reliable (e.g., Department of Business, Economic Development and Tourism (DBEDT), University of Hawaii Economic Research Organization, U.S. Bureau of Labor Statistics, Department of Labor and Industrial Relations (DLIR), Hawaii Tourism Authority (HTA), Honolulu Board of REALTORS® and national and local newspapers).

Through the first ~~three quarters~~eight months of ~~2018,~~2019, Hawaii’s tourism industry, a significant driver of Hawaii’s economy, ~~continues to grow~~showed an increase in ~~both~~ visitor ~~spending~~arrivals and ~~arrivals.~~decrease in visitor spending. Visitor ~~expenditures increased 9.8% and~~ arrivals increased ~~6.5%~~5.5% and expenditures at -0.1% is relatively similar compared to the same period in ~~2017.~~2018. Looking ahead, the Hawaii Tourism Authority expects scheduled nonstop seats to Hawaii to increase as the year progresses, driven primarily by an increase in seats from West Coast, East Coast and Asia. While visitor arrivals numbers are still impressive, UHERO foresees a weakening of the growth in tourism due to lower activity from the international markets and from the enforcement of new regulations governing home vacation rentals.

Hawaii’s unemployment rate ~~remained steady at 2.2%~~declined slightly to 2.7% for September ~~2018,~~2019, which was ~~comparable to~~higher than the rate for September ~~2017 and~~2018, but lower than the national unemployment rate of ~~3.7%~~3.5%. ~~It is also the lowest unemployment rate in the nation.~~

Hawaii real estate activity, as indicated by the home resale market, experienced a ~~growth~~decline in median sales prices for single family homes and condominiums ~~so far in 2018.~~for the year-to-date period ended September 30, 2019. Median sales prices for single family residential homes on Oahu through September ~~2018~~2019 were ~~higher~~lower by ~~4.2%~~-0.5% and for condominiums were ~~higher~~lower by ~~5.5%,~~-1% over the same time period in ~~2017.~~2018. The number of closed sales were up by 0.8% for single family residential homes and ~~condominiums~~ were down by ~~-3.7% and -0.1% respectively~~-6.7% for condominiums through September of ~~2018~~2019 compared to same time period ~~of 2017.~~in 2018.

Hawaii’s petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in international markets. Although the price of crude oil fluctuates month to month, the ~~general trend~~price has been ~~an increasing one~~decreasing over the last ~~2.5 years.~~few months.

At its ~~September 2018~~October 2019 meeting, the Federal Open Market Committee (FOMC) ~~decided to raise~~lowered the target range for the federal funds rate ~~from “2%~~ to ~~2.25%”~~1-1/2% to 1-3/4% in light of implications of global developments for the economic outlook as well as muted inflation pressures. This action supports the FOMC’s view that sustained expansion of ~~realized and expected~~economic activity, strong labor market conditions, and ~~inflation.~~inflation near the FOMC’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.

In its state forecast released in September 2019, the University of Hawaii Economic Research Organization stated that economic growth in the islands has been slowing for several years. The ~~FOMC will~~main contributing factors are two years of population decline that have reduced demand in many sectors and a decline in visitor spending. Construction remains a bright spot in the economy. The State’s Department of Business, Economic Development & Tourism in its third quarter 2019 Outlook for the Economy report has a more positive outlook and stated that Hawaii’s economy is expected to continue ~~to assess economic conditions relative to its objectives of maximum employment~~positive growth in 2019 and ~~2% inflation~~2020 based on recent developments in ~~determining~~ the ~~size~~national and ~~timing of future adjustments to~~global economies, performance in the ~~target range.~~

~~The performance of Hawaii’s~~ tourism industry, ~~remains strong. However, natural disasters such as the volcanic eruption on the Big Island~~labor market conditions and ~~flooding from tropical storms on Kauai~~growth in personal income and ~~the Big Island have had negative impacts on those islands, translating to some visitor traffic diversion to Oahu and Maui. Local economists~~tax revenues. They are ~~agreeing that Hawaii’s economic growth continues to be positive but are signifying that the economic expansion has slowed. Potential risks to~~projecting the Hawaii economy, ~~include infrastructure constraints, tight~~as measured by real GDP, to show an increase of 1.1% in 2019, followed by 1.2% in 2020. Both organizations have indicated that Hawaii’s economy depends significantly on the U.S. and key global economies as there is a direct relationship to the visitor industry and labor markets and high housing costs creating inflationary pressures. International trade tariffs and natural disasters also remain a source of great uncertainty. Most recently, a hotel employee strike which started in early October continues to impact thousands of hotel workers, customers and guests at a handful of properties on Oahu and Maui which could put a damper on Hawaii’s visitor industry.market conditions.

“Other” segment.


	Three months ended September 30						Nine months ended September 30							Three months ended September 30,						Nine months ended September 30
(in thousands)	2018			2017			2018			2017			Primary reason(s)	2019			2018			2019			2018			Primary reason(s)
Revenues	$	143		$	127		$	218		$	299			$	4		$	143		$	86		$	218
Operating loss	(3,236		)	(4,000		)	(10,865		)	(12,655		)	Third quarter and first nine months of 2018 include $0.7 million and $3.0 million, respectively, of operating income from Pacific Current, LLC¹. Third quarter 2018 corporate expense was slightly lower than third quarter of 2017; first nine months of 2018 corporate expense was slightly higher than same period in 2017.	(3,446		)	(3,236		)	(12,503		)	(10,865		)	The third quarters of 2019 and 2018 include $1.0 million and $0.7 million, respectively, of operating income from Pacific Current¹. Third quarter 2019 corporate expense was flat compared to the third quarter of 2018. The nine months ended September 30, 2019 and 2018 include $2.3 million and $3.0 million, respectively, of operating income from Pacific Current¹. The lower Pacific Current operating income was primarily due to the hiring of Pacific Current employees. Corporate expense for the nine months ended September 30, 2019 was $1.0 million higher than the same period in 2018, primarily due to higher professional fees, partly offset by lower incentive compensation expense.
Net loss	(5,033		)	(5,006		)	(16,897		)	(11,807		)	Third quarter and first nine months of 2018 include higher interest expense (due to higher interest rates and balances at corporate and new debt at Pacific Current, LLC related to Hamakua Energy’s acquisition of a power plant) and lower tax benefits on expenses as a result of tax reform in third quarter and first nine months of 2018 as compared to the same periods in 2017.	(6,248		)	(5,033		)	(20,603		)	(16,897		)	The net loss for the third quarter and first nine months of 2019 was higher than the net loss for the third quarter and first nine months of 2018 due to higher interest expense (as a result of higher interest rates and balances at corporate), higher HEI corporate expenses, and lower Pacific Current net income, partially offset by a higher income tax benefit.

~~Acquisition of a Solar + Storage Power Purchase Agreement~~. On February 2, 2018, Mauo 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 for the customer to extend for an additional five years. The system is being constructed by a third-party contractor under an Engineering, Procurement and Construction (EPC) contract that was contemporaneously negotiated and executed by Mauo. The EPC contract provides a fixed price for the construction of the system, a project completion schedule and performance obligations designed to match the requirements of the PPA. Mauo plans to fund the construction of the project with a construction loan facility that will be repaid at the commercial operation date (ultimately with cash from investment tax credits, state renewable tax credits and non-recourse project debt). Most of the separate sites that comprise the project are expected to be substantially complete and operational in 2019.

Liquidity and capital resources. As a result of the Tax Cut and Jobs Act, utility property is no longer eligible for bonus depreciation, but further guidance is required in order to finally determine the application of the new law. However, note that recent clarification in the tax law indicates that certain assets with longer construction periods that were placed in service after the effective date may be grandfathered and qualify for the old 50% bonus depreciation if subject to binding contracts entered into before such effective date. Consequently, additional bonus depreciation was taken for the fourth quarter of 2017 in the Company’s income tax return, resulting in an additional deferral of income taxes. The Utilities are currently evaluating its larger projects placed into service in 2018 for applicability. Nevertheless, the initial cash requirement for future utility capital projects will generally increase because of the loss of the immediate tax benefit from bonus depreciation. The Company believes that its ability to generate cash, both internally from electric utility and banking operations and externally from issuances of equity and debt securities, commercial paper and bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other cash requirements for the foreseeable future.

The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:

HEI’s commercial paper borrowings and line of credit facility were as follows:

Note: This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under “Electric utility—Financial Condition—Liquidity and capital resources.” The maximum amount of HEI’s external short-term borrowings during the first nine months of ~~2018~~2019 was ~~$68~~$102 million.

In October 2019, Moody’s revised HEI’s rating outlook to “positive” from “stable,” and affirmed HEI’s P-3 commercial paper rating. The revision to the rating outlook was based on the considerable progress made with respect to the Utilities’ transition to renewable energy and the improvement in its customer service.

On October 4, 2018, HEI closed on a private placement transaction to issue $150 million senior unsecured notes in two tranches ($50 million HEI Series 2018A and $100 million HEI Series 2018B). Proceeds from the $50 million HEI Series 2018A tranche drawn in October 2018 were used to repay HEI’s $50 million short-term borrowing with The Bank of Tokyo-Mitsubishi UFJ, Ltd. Proceeds from the HEI Series 2018B tranche to be drawn in December 2018 will be used for general corporate purposes, including contributions to Hawaiian Electric to maintain a targeted equity capitalization structure.

For the first nine months of ~~2018,~~2019, net cash provided by operating activities of HEI consolidated was ~~$258~~$341 million. Net cash used by investing activities for the same period was ~~$542~~$373 million, primarily due to ~~Hawaiian Electric’s consolidated~~ capital expenditures and ASB’s net increase in loans, ~~held for investment and purchases of investment securities,~~ partly offset by ASB’sreceipt of repayments from and proceeds from the sale of available-for-sale investment ~~securities and Hawaiian Electric’s receipt of contributions in aid of construction.~~securities. Net cash provided by financing activities during this period was ~~$194~~$40 million as a result of several factors, including net increases in short-term borrowings and ASB’s deposit liabilities, ~~proceeds from other bank borrowings~~the issuance of short-term and long-term debt, ~~and net increases in ASB’s retail purchase agreements,~~ partly offset by ~~the~~ payment of common stock dividends and ~~repayments~~repayment of ~~other bank borrowings. Other than capital contributions from their parent company, intercompany services (and related intercompany payables~~long-term debt and ~~receivables), Hawaiian Electric’s periodic short-term borrowings from HEI (and related interest) and the payment~~funds transferred for redemption of dividends to HEI, the electric utility and bank segments are largely autonomous in their operating, investing and financing activities. (See the electric utility and bank segments’ discussions of their cash flows in their respective “Financial condition—Liquidity and capital resources” sections below.)special purpose revenue bonds. During the first nine months of ~~2018,~~2019, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of ~~$77~~$76 million and ~~$36~~$47 million, respectively.

~~CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION~~

Dividends.The payout ratios for the first nine months of 2019 and full year 2018 were 69% and 67%, respectively. HEI currently expects to maintain its dividend at its present level; however, the HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation including, but not limited to, the Company’s results of operations, the long-term prospects for the Company and ~~financial condition can be affected by numerous factors, many of which are beyond the Company’s control~~current and ~~could cause~~expected future results of operations to differ materially from historical results. For information about certain of these factors, see pages 49, 63 to 65, and 75 to 77 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2017 Form 10-K.economic conditions.

~~Additional factors that may affect future results and financial condition are described on pages iv and v under “Cautionary Note Regarding Forward-Looking Statements.”~~

~~MATERIAL ESTIMATES AND CRITICAL ACCOUNTING POLICIES~~FINANCIAL CONDITION

~~In preparing financial statements, management is required to make estimates~~Liquidity and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.

In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial statements—that is, managementcapital resources. The Company believes that ~~these policies are~~its ability to generate cash, both ~~the most important to the portrayal of the Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or complex judgments.~~

~~For information about these material estimates and critical accounting policies, see pages 50 to 51, 65, and 77 to 80 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2017 Form 10-K.~~

~~Following are discussions of the results of operations, liquidity and capital resources of the~~internally from electric utility and banking operations and externally from issuances of equity and debt securities, commercial paper and bank ~~segments.~~borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other cash requirements for the foreseeable future.

~~Electric utility~~

Revenues. Net increase largely due to:

higher fuel oil prices¹

higher purchased power energy costs²

Fuel oil expense. Increase due to higher fuel oil prices and higher KWH generated

Purchased power expense. Net increase due to:

Operation and maintenance expenses. Net increase due to:

Other expenses. Increase due to higher revenue taxes from higher revenue, coupled with higher depreciation expense for plant investments in 2017

Operating income. Decrease due to higher operation and maintenance and other expenses, offset in part by higher revenue

Net income for common stock. Increase due to higher RAM and MPIR revenues, rate relief and lower income taxes, offset in part by higher expenses, including interest expense. See below for discussion on effective tax rate.

Kilowatthour sales (millions)³

Average fuel oil cost per barrel¹

HEI’s commercial paper borrowings and line of credit facility were as follows:

Nine months ended September 30 Increase
2018 2017 (decrease) (dollars in millions, except per barrel amounts)
$ 1,866
$ 1,674
$ 192

Revenues. Net increase largely due to:
$ 119

higher fuel oil prices¹
50

higher purchased power energy costs²
35
higher RAM and MPIR revenues
28
higher rate relief
5
higher KWH generated
(10 ) lower KWH purchased
(34 ) Tax reform adjustment
545
432
113

Fuel oil expense. Increase due to higher fuel oil prices and higher KWH generated
478
441
37

Purchased power expense. Net increase due to:
44
higher purchased power energy price
2
higher AES Hawaii capacity charges
(9 ) lower KWH purchased
334
302
32

Operation and maintenance expenses. Net increase due to:
17
reset of pension costs included in rates as part of rate case interim decisions
3
25KV underground circuit repair work
3
higher operation and maintenance expenses for generation plants
2
write-off of smart grid costs
2
higher ERP costs related to outside consultants
2
higher medical premium costs
1
operation expenses for Schofield Generating Station placed in service in June
1
one-time rent expense adjustment for existing substation land
1
higher workers’ compensation claims
328
304
24

Other expenses. Increase due to higher revenue taxes from higher revenue, coupled with higher depreciation expense for plant investments in 2017
181
195
(14 )
Operating income. Decrease due to higher operation and maintenance and other expenses, offset in part by higher revenue
108
95
13

Net income for common stock. Increase due to higher RAM and MPIR revenues, rate relief and lower taxes, offset in part by higher expenses, including interest expense. See below for discussion on effective tax rate.

6,469
6,528
(59 )
Kilowatthour sales (millions)³
$ 84.67
$ 67.42
$ 17.25

Average fuel oil cost per barrel¹
462,516
461,408
1,108
Customer accounts (end of period)
Note: This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under “Electric utility—Financial Condition—Liquidity and capital resources.” The maximum amount of HEI’s external short-term borrowings during the first nine months of 2019 was $102 million.

For the first nine months of 2019, net cash provided by operating activities of HEI consolidated was $341 million. Net cash used by investing activities for the same period was $373 million, primarily due to capital expenditures and ~~2017 were 12%~~ASB’s net increase in loans, partly offset by ASB’sreceipt of repayments from and ~~36%,~~proceeds from the sale of available-for-sale investment securities. Net cash provided by financing activities during this period was $40 million as a result of several factors, including net increases in short-term borrowings and ASB’s deposit liabilities, the issuance of short-term and long-term debt, partly offset by payment of common stock dividends and repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds. During the first nine months of 2019, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $76 million and $47 million, respectively.

Dividends. The ~~Utilities’ effective tax rates~~payout ratios for the first nine months of ~~2018~~2019 and 2017 were 19% and 36%, respectively. The effective tax rates were lower for the three and nine months ended September 30, 2018 compared to the same periods in 2017 due primarily to the provision in the Tax Act that lowered the federal income tax rate from 35% to 21% and the related amortization of excess deferred income taxes. In addition, certain tax return adjustments, most notably an increased pension deduction made in conjunction with the filing of the Company’s 2017 tax returns, contributed to the lower effective tax rate that were associated with the additional tax benefits realized due to the rate differential. The lower tax rate was partially offset by other Tax Act

~~Hawaiian Electric’s consolidated ROACE was 7.2% for the twelve months ended September 30, 2018 and September 30, 2017.~~

~~The Utilities’ consolidated KWH sales have declined each year since 2007. Based on expectations of additional customer renewable self-generation and energy-efficiency installations, the Utilities’~~ full year 2018 ~~KWH sales are expected~~were 69% and 67%, respectively. HEI currently expects to ~~be below~~maintain its dividend at its present level; however, the ~~2017 level. However, due~~HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation including, but not limited to, the ~~decoupling model implemented in 2011, revenues are not tied to KWH sales and include annual rate adjustments to revenues. See “Decoupling” in~~Company’s results of operations, the ~~“Regulatory proceedings” section of Note 3 of the condensed consolidated financial statements for additional information.~~

The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of September 30, 2018 amounted to $4 billion, of which approximately 29% related to generation PPE, 62% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 10% of the total net book value relates to generation PPE that has been deactivated or that the Utilities plan to deactivate or decommission. See “Adequacy of supply” below.

~~See “Economic conditions” in the “HEI Consolidated” section above.~~

~~Power Supply Improvement Plans and Integrated Grid Planning~~. The December 2016 PSIP Update Report approved by the PUC in July 2017 includes the continued growth of private rooftop solar and describes the grid and generation modernization work needed to reliably integrate an estimated total of 165,000 private systems by 2030, and additional grid-scale renewable energy resources. In addition, the plans forecast the addition of 360 MW of grid-scale solar and 157 MW of grid-scale wind, with 8 MW derived from the first phase of the community-based renewable energy (CBRE) program. The plans also include 115 MW from Demand Response (DR) programs, which can shift customer use of electricity to times when more renewable energy is available, potentially making room to add even more renewable resources. The December 2016 Update Report emphasizes work that is in progress or planned through 2021 on each of the five islands the Utilities serve.

Achieving 100% renewable energy will require modernizing the grid through coordinated energy system planning in partnership with local communities and stakeholders to affordably move Hawaii towards reliable and resilient clean energy future with minimal risk. To accomplish this, the Utilities filed its Integrated Grid Planning (IGP) Report with the PUC on March 1, 2018, which provides an innovative systems approach to energy planning intended to yield the most cost-effective renewable energy pathways that are rooted in customer and stakeholder input. The Utilities’ IGP fully integrates resource, transmission, and distribution planning and incorporates solutions sourcing into the planning process. This will enable optimization and coordination of the solutions, thereby resulting in actionable near-term plans that maximize value to customers.

~~The PUC opened a docket~~long-term prospects for the ~~IGP process that the Utilities had proposed. The Utilities are required to file an IGP work plan by December 14, 2018, describing the timing~~Company and ~~scope of major activities that will occur in the IGP process.~~

~~Demand response programs. The PUC provided guidance concerning the objectives~~current and goals for Demand Response (DR) programs, and ordered the Utilities to develop an integrated DR Portfolio Plan that will enhance system operations and reduce costs to customers. The Utilities’ DR Portfolio will create theexpected future economic and technical means by which customers can use their own equipment and behavior to have a role in the management of the electricity grid. Participating customers will be empowered with increasing opportunities to simultaneously install DER enabling active participation in the grid and its associated economics. These opportunities will take the form of either rates or incentive-based programs that will compensate customers for their participation, or by way of engagements with turnkey service providers that contract with the Utilities to aggregate and deliver various grid services on behalf of participating customers and their distributed assets.conditions.

In October 2017, the PUC approved the Utilities request made in December 2015 to defer and recover certain computer software and software development costs for a DR Management System in an amount not to exceed $3.9 million, exclusive of AFUDC, through the Renewable Energy Infrastructure Program Surcharge. The Utilities completed the first milestone of Blueprinting and realization phase and have transitioned into the system integration testing phase, which will continue through the fourth quarter of 2018. The Utilities are still on schedule for the DR Management System to be in service by first quarter of 2019.

On January 25, 2018, the PUC approved the Utilities’ revised DR Portfolio tariff structure. The PUC supported the approach of working with aggregators to implement the DR portfolio, and ordered the Utilities to complete contracting by June 2018 and initiate first implementation by the third quarter of 2018. The Utilities have selected the aggregators and commenced negotiations in July 2018, with many technical requirements discussions held. The negotiations with the aggregators will continue into early fourth quarter of 2018.

~~Distributed Energy Resources. The PUC has approved rules and tariffs for the following Distributed Energy Resources (DER) programs:~~

~~PUC orders have also addressed interconnection requirements, authorized advanced inverter functions in PV and storage systems and specified reporting requirements regarding hosting capacity analyses.~~

~~Grid modernization~~. After launching a smart grid customer engagement plan during the second quarter of 2014, Hawaiian Electric replaced approximately 5,200 residential and commercial meters with smart meters, 160 direct load control switches, fault circuit indicators and remote controlled switches in selected areas across Oahu as part of the Smart Grid Initial Phase implementation. Also under the Initial Phase a grid efficiency measure called Volt/Var Optimization (or Conservation Voltage Reduction) was enabled, customer energy portals were launched and are available for customer use and a PrePay Application was launched. The Initial Phase implementation was completed in 2015. The smart grid provides benefits such as customer tools to manage their electric bills, potentially shortening outages and enabling the Utilities to integrate more low-cost renewable energy, like wind and solar, which will reduce Hawaii’s dependence on imported oil.

In March 2016, the Utilities sought PUC approval to commit funds for an expansion of the smart grid project. The proposed smart grid project was estimated to cost $340 million and to be implemented over 5 years. On January 4, 2017, the PUC issued an order dismissing the application without prejudice and directing the Utilities to submit a Grid Modernization Strategy.

The PUC indicated that the overall goal of the Grid Modernization Strategy is to deploy modern grid investments at an appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and obsolescence, deliver customer benefits and enable greater DER and renewable energy integration. On June 30, 2017, the Utilities filed an initial draft of the Grid Modernization Strategy describing how new technology will help triple private rooftop solar and make use of rapidly evolving products including storage and advanced inverters. The cost of the first segment of the modernization is estimated at about $205 million over six years. The Utilities filed their final Grid Modernization Strategy on August 29, 2017. On February 7, 2018, the PUC issued an order setting forth next steps and directives for the Utilities to implement the Grid Modernization Strategy. The Utilities have begun work to implement the Grid Modernization Strategy by issuing solicitations for advanced meters, a meter data management system, and a communications network. Also, the Utilities

~~Community-Based Renewable Energy~~. In December 2017, the PUC adopted a CBRE program framework which allows customers who cannot, or chose not to, take advantage of private rooftop solar to receive the benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. The program has two phases.

The first phase will total 8 MW of solar PV only with one credit rate for each island. The Utilities' role will be limited to administrative only during the first phase. In July 2018, the Utilities’ tariffs for each island and phase 1 of the CBRE program commenced. The Utilities are in the process of verifying the projects and awarding the capacity to interested subscriber organizations. The response has been positive; four of the five islands that the Utilities serve have received applications that equal or exceed what is allowed in phase 1.

The second phase will commence after review of the first full year of the first phase. The second phase is contemplated to be a larger capacity and include multiple credit rates (e.g., time of day) and various technologies. The Utilities will have the opportunity to develop self-build projects; however 50% of utility capacity will be reserved for low to moderate income customers.

~~Microgrid services tariff proceeding~~. On July 10, 2018, the PUC issued an order instituting a proceeding to investigate establishment of a microgrid services tariff, pursuant to Act 200 (July 10, 2018 Act). The PUC will issue subsequent order(s) establishing a statement of issues to be addressed in the order, and issue a procedural schedule to govern this proceeding, after the deadline for the filing of motions to intervene or participate.

~~Decoupling.~~ ~~See "Decoupling" in Note 3 of the Condensed Consolidated Financial Statements for a discussion of decoupling.~~

As part of decoupling, the Utilities also track their rate-making ROACEs as calculated under the earnings sharing mechanism, which includes only items considered in establishing rates. At year-end, each utility's rate-making ROACE is compared against its ROACE allowed by the PUC to determine whether earnings sharing has been triggered. Annual earnings of a utility over and above the ROACE allowed by the PUC are shared between the utility and its ratepayers on a tiered basis. Earnings sharing credits are included in the annual decoupling filing for the following year. Results for 2017, 2016 and 2015 did not trigger the earnings sharing mechanism for the Utilities.

The gap between PUC-allowed ROACEs and the ROACEs actually achieved is primarily due to: the consistent exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), the recognition of annual RAM revenues on June 1 annually rather than on January 1, the low RBA interest rate (currently a short-term debt rate rather than the actual cost of capital), O&M increases and return on capital additions since the last rate case in excess of indexed escalations, and the portion of the pension regulatory asset not earning a return due to pension contributions and pension costs in excess of the pension amount in rates. In 2017, the utility ROACEs actually achieved reflect negative impacts of the Tax Act on deferred tax assets.

~~Most recent rate proceedings.~~ Unless otherwise agreed or ordered, each electric utility is currently required by PUC order to initiate a rate proceeding every third year (on a staggered basis) to allow the PUC and the Consumer Advocate to regularly evaluate decoupling and to allow the utility to request electric rate increases to cover rising operating costs and the cost of plant and equipment, including the cost of new capital projects to maintain and improve service reliability and integrate more renewable energy. The PUC may grant an interim increase within 10 to 11 months following the filing of an application, but there is no guarantee of such an interim increase and interim amounts collected are refundable, with interest, to the extent they exceed the amount approved in the PUC’s final D&O. The timing and amount of any final increase is determined at the discretion of the PUC. The adoption of revenue, expense, rate base and cost of capital amounts (including the ROACE and RORB) for purposes of an interim rate increase does not commit the PUC to accept any such amounts in its final D&O.

The effects of the Tax Act on Utilities’ regulated operations accrued to the benefit of customers from the effective date of January 1, 2018. Generally, the lower corporate income tax rate lowers the Utilities’ revenue requirements through lower income tax expense and through the amortization of a regulatory liability for excess accumulated deferred income taxes (ADIT) resulting from the recording of ADIT in prior years at the higher income tax rate. The revenues collected in the first and a portion of the second quarters reflected income taxes at the old 35% rate and consequently, the Utilities reduced revenues to the extent the income taxes collected in 2018 revenue exceeded the taxes accrued at the new 21% rate. This reduction was recorded to a regulatory liability and electric rates have been adjusted in the second quarter to initiate the pass back of the 2018 excess to customers over various amortization periods. In addition, rates have been adjusted to begin passing back the excess ADIT that was accumulated as of December 31, 2017. The Tax Act also excludes the Utilities’ asset additions from qualifying for bonus depreciation, which will partially offset the aforementioned impacts by lowering ADIT and thereby increasing rate base and the associated revenue requirement for new plant going forward. However, note that the guidance issued in Treasury regulations proposed in August 2018 allowed the Utilities to take bonus depreciation on certain grandfathered utility property.

Test year
(dollars in millions)

Date
(filed/
implemented)
Amount
% over
rates in
effect

ROACE
(%)

RORB
(%)

Rate
base

Common
equity
%

Stipulated agreement
reached with
Consumer Advocate
Hawaiian Electric

2017 ¹

Request 12/16/16 $ 106.4
6.9
10.60
8.28
$ 2,002
57.36
Yes
Interim increase 2/16/18 36.0
2.3
9.50
7.57
1,980
57.10

Interim increase with Tax Act 4/13/18 (0.6 ) —
9.50
7.57
1,993
57.10

Final increase 9/1/18 (0.6 ) —
9.50
7.57
1,993
57.10

Hawaii Electric Light

2016²

Request 9/19/16 $ 19.3
6.5
10.60
8.44
$ 479
57.12
Yes
Interim increase 8/31/17 9.9
3.4
9.50
7.80
482
56.69

Interim increase with Tax Act 5/1/18 1.5
0.5
9.50
7.80
481
56.69

Final increase 10/1/18 —
—
9.50
7.80
481
56.69

Maui Electric

2018
Request 10/12/17 $ 30.1
9.3
10.60
8.05
$ 473
56.94
Yes
Interim increase 8/23/18 12.5
3.82
9.50
7.43
462
57.02

~~Depreciation docket~~. In December 2016, the Utilities filed an application with the PUC for approval of changes in the depreciation and amortization rates and amortization period for CIAC, based on a 2015 Book Depreciation Study. In July 2018, the PUC approved the stipulated agreement between the Utilities and the Consumer Advocate, which among other things:

~~Hawaiian Electric~~. In January 2018, Hawaiian Electric filed its 2018 Adequacy of Supply (AOS) letter, which indicated that based on its June 2017 sales and peak forecast for the 2018 - 2023 time period, Hawaiian Electric's generation capacity will be sufficient to meet reasonably expected demands for service and provide reasonable reserves for emergencies through 2021, but may have shortfalls in meeting the Utilities’ generating system reliability guideline. The calculated reliability guideline shortfalls are relatively small and Hawaiian Electric can implement mitigation measures.

In accordance with its planning criteria, Hawaiian Electric deactivated two fossil fuel generating units from active service at its Honolulu Power Plant in January 2014. Hawaiian Electric acquired new firm capacity of 8 MW with the commissioning of the State of Hawaii Department of Transportation’s emergency power facility in June 2017. Hawaiian Electric is continuing negotiations with firm capacity IPPs on Oahu. On August 22, 2018, Hawaiian Electric and Kalaeloa entered into an agreement that neither party will give written notice of termination of the Kalaeloa PPA prior to October 31, 2019. The PPA with AES Hawaii is scheduled to expire in 2022. On June 7, 2018, Hawaiian Electric’s Schofield Generating Station was placed into service, providing approximately 50 MW of additional generating capability on Oahu.

~~Hawaii Electric Light~~. In January 2018, Hawaii Electric Light filed its 2018 AOS letter, which indicated that Hawaii Electric Light’s generation capacity through 2020 is sufficient to meet reasonably expected demands for service and provide for reasonable reserves for emergencies. Hawaii Electric Light is anticipating the addition of the firm dispatchable Honua Ola facility (formerly named Hu Honua) to be online by the end of 2018. Since May 2018, the Puna Geothermal Venture facility has been offline due to the lava flow on Hawaii Island. Hawaii Electric Light expects to have sufficient generation capacity despite the shutdown of Puna Geothermal Venture.

~~Maui Electric~~. In January 2018, Maui Electric filed its 2018 AOS letter, which indicated that Maui Electric’s generation capacity for the islands of Lanai and Molokai for the next three years is sufficiently large to meet all reasonably expected demands for service and provide reasonable reserves for emergencies. The 2018 AOS letter also indicated that without the peak reduction benefits of demand response but with the equivalent firm capacity value of wind generation, Maui Electric expects to have a reserve capacity shortfall from 2018 to 2020 on the island of Maui. Maui Electric is evaluating several measures to mitigate the anticipated reserve capacity shortfall. Maui Electric anticipates needing a significant amount of additional firm capacity on Maui in the 2022 timeframe after the planned retirement of the Kahului Power Plant.

In May 2016, Maui Electric requested that the PUC open a new docket for Maui Electric’s competitive bidding process for additional firm capacity resources. In October 2017, Maui Electric filed a draft RFP and supporting documents as requested by the PUC. In January 2018, the PUC issued an order appointing an Independent Observer of the RFP process that reports to the PUC for Maui Firm RFP. However, the PUC stated Maui Electric should focus on its variable RFP and noted that it would provide further guidance on the Firm RFP. The Utilities are currently working with the Independent Observer for the Maui Firm RFP to update and revise the draft Maui Firm RFP for filing with the PUC for approval.

In September 2016, Maui Electric submitted an application to purchase and install three temporary mobile distributed generation diesel engines to address increasing reserve capacity shortfalls on the island of Maui; Maui Electric has since requested the PUC to suspend the proceeding to evaluate contingency measures and permanent solutions to minimize or eliminate the risk of near-term capacity shortfalls on the island of Maui.

~~Legislation and regulation.~~ Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the Utilities and their customers. Also see “Environmental regulation” in Note 3 of the Condensed Consolidated Financial Statements.

~~Clean Water Act Section 316(b)~~. On August 14, 2014, the EPA published in the Federal Register the final regulations required by section 316(b) of the CWA designed to protect aquatic organisms from adverse impacts associated with existing power plant cooling water intake structures. The regulations were effective October 14, 2014 and apply to the cooling water

systems for the steam generating units at three of Hawaiian Electric’s power plants on the island of Oahu. The regulations prescribe a process, including a number of required site-specific studies, for states to develop facility-specific entrainment and impingement controls to be incorporated in each facility’s National Pollutant Discharge Elimination System permit. Hawaiian Electric submitted the final site specific studies to the DOH in December 2016 for the Honolulu and Waiau power plants and in September 2017 for the Kahe power plant. Hawaiian Electric will work with the DOH to identify the appropriate compliance methods for the 316(b) rule.

~~Performance-based ratemaking legislation~~. ~~See “Performance incentive mechanisms” and “Performance-based regulation proceeding” in Note 3 of the Condensed Consolidated Financial Statements.~~

~~PUC Commissioner.~~ Jennifer Potter began her term as PUC Commissioner, effective July 1, 2018, replacing outgoing commissioner Lorraine Akiba, whose term expired on June 30, 2018. Ms. Potter was an assistant specialist at Hawaii Natural Energy Institute, and previously worked at Lawrence Berkley National Lab as a senior scientific engineering associate, as well as at the Sacramento Municipal Utility District in various positions.



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



Registrant	Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Hawaiian Electric Industries, Inc.	Common Stock, Without Par Value	HE	New York Stock Exchange



Hawaiian Electric Industries, Inc.	Yesx	☒	Noo	☐	Hawaiian Electric Company, Inc.	Yesx	☒	Noo	☐



Hawaiian Electric Industries, Inc.	Yesx	☒	Noo	☐	Hawaiian Electric Company, Inc.	Yesx	☒	Noo	☐



Hawaiian Electric Industries, Inc.				~~Large accelerated filer~~ x :		Hawaiian Electric Company, Inc.:
Large accelerated filero	☒	Smaller reporting company	☐	Large accelerated filer	☐	Smaller reporting company	☐
		Accelerated filero	☐	Emerging growth company	☐	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐			Non-accelerated filer	☒				~~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
		~~Emerging growth company~~ o				~~Emerging growth company~~ o



Hawaiian Electric Industries, Inc.	Yeso	☐	Nox	☒	Hawaiian Electric Company, Inc.	Yeso	☐	Nox	☒



Class of Common Stock	Outstanding October ~~27, 2018~~25, 2019
Hawaiian Electric Industries, Inc. (Without Par Value)	~~108,879,245~~ 108,972,564	Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value)	~~16,142,216~~ 16,751,488	Shares (not publicly traded)



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

	PART I. FINANCIAL INFORMATION
1	Item 1.	Financial Statements
		Hawaiian Electric Industries, Inc. and Subsidiaries
1		Condensed Consolidated Statements of Income (unaudited) - three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018
2		Condensed Consolidated Statements of Comprehensive Income (unaudited) - three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018
3		Condensed Consolidated Balance Sheets (unaudited) - September 30, ~~2018~~2019 and December 31, ~~2017~~2018
4		Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018
5		Condensed Consolidated Statements of Cash Flows (unaudited) - nine months ended September 30, ~~2018~~2019 and ~~2017~~2018
		Hawaiian Electric Company, Inc. and Subsidiaries
6		Condensed Consolidated Statements of Income (unaudited) - three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018
6		Condensed Consolidated Statements of Comprehensive Income (unaudited) - three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018
7		Condensed Consolidated Balance Sheets (unaudited) - September 30, ~~2018~~2019 and December 31, ~~2017~~2018
8		Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited) - three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018
9		Condensed Consolidated Statements of Cash Flows (unaudited) - nine months ended September 30, ~~2018~~2019 and ~~2017~~2018
10		Notes to Condensed Consolidated Financial Statements (unaudited)
6457	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
6457		HEI consolidated
6860		Electric Utilities
7970		Bank
8777	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
8878	Item 4.	Controls and Procedures

	PART II.	OTHER INFORMATION
8980	Item 1.	Legal Proceedings
8980	Item 1A.	Risk Factors
8980	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
9081	Item 6.	Exhibits
9182	Signatures



Terms		Definitions
~~ADIT~~		~~Accumulated deferred income tax balances~~
AES Hawaii		AES Hawaii, Inc.
AFUDC		Allowance for funds used during construction
AOCI		Accumulated other comprehensive income/(loss)
~~ASC~~		~~Accounting Standards Codification~~
ASB		American Savings Bank, F.S.B., a wholly-owned subsidiary of ASB Hawaii, Inc.
ASB Hawaii		ASB Hawaii, Inc. (formerly American Savings Holdings, Inc.), a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
~~CIAC~~CBRE		~~Contributions in aid of construction~~
~~CIP CT-1~~		~~Campbell Industrial Park 110 MW combustion turbine No. 1~~Community-based renewable energy
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); ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B.; Pacific Current, LLC and its subsidiaries, Hamakua Holdings, LLC (and its subsidiary, Hamakua Energy, LLC) and Mauo Holdings, LLC (and its subsidiary, Mauo, LLC); and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)~~; and HEI Properties, Inc. (dissolved in 2015 and wound up in 2017)~~
Consumer Advocate		Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
~~CBRE~~		~~Community-based renewable energy~~
~~DER~~		~~Distributed energy resources~~
D&O		Decision and order from the PUC
DER		Distributed energy resources
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOH		Department of Health of the State of Hawaii
DRIP		HEI Dividend Reinvestment and Stock Purchase Plan
ECAC		Energy cost adjustment clause
ECRC		Energy cost recovery clause
EIP		2010 Equity and Incentive Plan, as amended and restated
EPA		Environmental Protection Agency — federal
EPS		Earnings per share
ERP/EAM		Enterprise Resource Planning/Enterprise Asset Management
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
GAAP		Accounting principles generally accepted in the United States of America



~~Terms~~		~~Definitions~~
GNMA		Government National Mortgage Association
Hamakua Energy		Hamakua Energy, LLC, an indirect subsidiary of HEI and successor in interest to Hamakua Energy Partners, L.P., an affiliate of Arclight Capital Partners (a Boston-based private equity firm focused on energy infrastructure investments) and successor in interest to Encogen Hawaii, L.P.
Hawaii Electric Light		Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.



	Three months ended September 30, 2017									Nine months ended September 30, 2017
(in thousands)	As previously filed			Adjustment from adoption of ASU No. 2017-07			As currently reported			As previously filed			Adjustment from adoption of ASU No. 2017-07			As currently reported
HEI Condensed Consolidated Income Statement
Expenses
Electric utility	$	511,693		$	(1,421	)	$	510,272		$	1,483,194		$	(4,279	)	$	1,478,915
Bank	47,525			(212		)	47,313			146,754			(608		)	146,146
Other	4,422			(295		)	4,127			13,777			(823		)	12,954
Total expenses	563,640			(1,928		)	561,712			1,643,725			(5,710		)	1,638,015
Operating income
Electric utility	87,076			1,421			88,497			191,061			4,279			195,340
Bank	26,764			212			26,976			75,720			608			76,328
Other	(4,295		)	295			(4,000		)	(13,478		)	823			(12,655		)
Total operating income	109,545			1,928			111,473			253,303			5,710			259,013
Retirement defined benefits expense--other than service costs	—			(1,928		)	(1,928		)	—			(5,710		)	(5,710		)
Hawaiian Electric Condensed Consolidated Income Statement
Other operation and maintenance	100,102			(1,421		)	98,681			306,716			(4,279		)	302,437
Total expense	511,693			(1,421		)	510,272			1,483,194			(4,279		)	1,478,915
Operating income	87,076			1,421			88,497			191,061			4,279			195,340
Retirement defined benefits expense--other than service costs	—			(1,421		)	(1,421		)	—			(4,279		)	(4,279		)
Hawaiian Electric Condensed Consolidating Income Statement (in Note 3)
Hawaiian Electric (parent only)
Other operation and maintenance	66,221			(1,225		)	64,996			204,460			(3,812		)	200,648
Total expense	367,619			(1,225		)	366,394			1,058,382			(3,812		)	1,054,570
Operating income	61,648			1,225			62,873			128,142			3,812			131,954
Retirement defined benefits expense--other than service costs	—			(1,225		)	(1,225		)	—			(3,812		)	(3,812		)
Hawaii Electric Light
Other operation and maintenance	16,593			15			16,608			49,667			183			49,850
Total expense	71,292			15			71,307			212,692			183			212,875
Operating income	13,042			(15		)	13,027			32,334			(183		)	32,151
Retirement defined benefits expense--other than service costs	—			15			15			—			183			183
Maui Electric
Other operation and maintenance	17,288			(211		)	17,077			52,589			(650		)	51,939
Total expense	72,782			(211		)	72,571			212,120			(650		)	211,470
Operating income	12,416			211			12,627			30,636			650			31,286
Retirement defined benefits expense--other than service costs	—			(211		)	(211		)	—			(650		)	(650		)
ASB Statements of Income Data (in Note 4)
Compensation and employee benefits	23,724			(212		)	23,512			71,703			(608		)	71,095
Other expense	5,050			212			5,262			14,066			608			14,674


		December 31, 2017						Three months ended September 30, 2017				Nine months ended September 30, 2017					December 31, 2018						Three months ended September 30, 2018				Nine months ended September 30, 2018
(in thousands)		Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized*		Average recorded investment		Interest income recognized*			Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized*		Average recorded investment		Interest income recognized*
With no related allowance recorded	With no related allowance recorded															With no related allowance recorded
Real estate:
Residential 1-4 family		$	9,097	$	9,644	$	—	$	9,650	$	70	$	9,503	$	230		$	7,822	$	8,333	$	—	$	8,940	$	239	$	8,779	$	396
Commercial real estate		—		—		—		—		—		121		11			—		—		—		—		—		—		—
Home equity line of credit		1,496		1,789		—		1,918		32		2,108		97			2,743		3,004		—		2,234		23		2,103		35
Residential land		1,143		1,434		—		1,209		73		1,080		107			2,030		2,228		—		1,773		6		1,358		16
Commercial construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Residential construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Commercial		2,328		3,166		—		1,808		29		2,888		37			3,722		4,775		—		3,915		6		3,099		26
Consumer		8		8		—		—		—		—		—			32		32		—		33		—		18		—
		$	14,072	$	16,041	$	—	$	14,585	$	204	$	15,700	$	482		$	16,349	$	18,372	$	—	$	16,895	$	274	$	15,357	$	473
With an allowance recorded
Real estate:
Residential 1-4 family		$	9,187	$	9,390	$	1,248	$	9,788	$	97	$	9,963	$	333		$	8,672	$	8,875	$	876	$	8,820	$	84	$	8,909	$	274
Commercial real estate		1,016		1,016		65		1,284		13		1,292		41			915		915		7		985		11		997		32
Home equity line of credit		6,692		6,736		647		5,076		68		4,670		164			12,057		12,086		701		12,090		111		10,083		288
Residential land		122		122		47		1,251		12		1,620		73			29		29		6		20		—		45		3
Commercial construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Residential construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Commercial		2,246		2,252		694		2,482		225		4,104		694			1,618		1,618		628		1,774		28		1,824		94
Consumer		58		58		29		67		1		55		2			57		57		4		57		1		58		3
		$	19,321	$	19,574	$	2,730	$	19,948	$	416	$	21,704	$	1,307		$	23,348	$	23,580	$	2,222	$	23,746	$	235	$	21,916	$	694
Total
Real estate:
Residential 1-4 family		$	18,284	$	19,034	$	1,248	$	19,438	$	167	$	19,466	$	563		$	16,494	$	17,208	$	876	$	17,760	$	323	$	17,688	$	670
Commercial real estate		1,016		1,016		65		1,284		13		1,413		52			915		915		7		985		11		997		32
Home equity line of credit		8,188		8,525		647		6,994		100		6,778		261			14,800		15,090		701		14,324		134		12,186		323
Residential land		1,265		1,556		47		2,460		85		2,700		180			2,059		2,257		6		1,793		6		1,403		19
Commercial construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Residential construction		—		—		—		—		—		—		—			—		—		—		—		—		—		—
Commercial		4,574		5,418		694		4,290		254		6,992		731			5,340		6,393		628		5,689		34		4,923		120
Consumer		66		66		29		67		1		55		2			89		89		4		90		1		76		3
		$	33,393	$	35,615	$	2,730	$	34,533	$	620	$	37,404	$	1,789		$	39,697	$	41,952	$	2,222	$	40,641	$	509	$	37,273	$	1,167


	Three months ended September 30, 2018											Nine months ended September 30, 2018
	Number of contracts		Outstanding recorded investment¹						Net increase in allowance			Number of contracts	Outstanding recorded investment¹						Net increase in allowance
Loans modified as a TDR																			Three months ended September 30, 2019							Nine months ended September 30, 2019
(dollars in thousands)	Number of contracts	Number of contracts			Pre-modification			Post-modification			(as of period end)		Number of contracts		Pre-modification			Post-modification			(as of period end)		Number of contracts		Outstanding recorded investment (as of period end)¹			Related allowance (as of period end)		Number of contracts		Outstanding recorded investment (as of period end)¹			Related allowance (as of period end)
Troubled debt restructurings												Number of contracts	Number of contracts
Real estate:		Number of contracts
Residential 1-4 family	3		$	632		$	649		$	1		4	$	971		$	993		$	17		1	$	324		$	—		10	$	1,563		$	165
Commercial real estate	—		—			—			—			—	—			—			—			—	—			—			—	—			—
Home equity line of credit	16		1,584			1,585			263			55	7,092			7,097			1,205			—	—			—			3	429			85
Residential land	3		1,562			1,568			—			4	1,671			1,677			—			1	350			—			3	1,169			—
Commercial construction	—		—			—			—			—	—			—			—			—	—			—			—	—			—
Residential construction	—		—			—			—			—	—			—			—			—	—			—			—	—			—
Commercial	6		256			256			134			13	2,550			2,550			176			3	275			58			6	1,761			218
Consumer	—		—			—			—			—	—			—			—			—	—			—			—	—			—
	28		$	4,034		$	4,058		$	398		76	$	12,284		$	12,317		$	1,398		5	$	949		$	58		22	$	4,922		$	468

Loans modified as a TDR																						Three months ended September 30, 2018							Nine months ended September 30, 2018
(dollars in thousands)																						Number of contracts	Outstanding recorded investment (as of period end)¹			Related allowance (as of period end)			Number of contracts	Outstanding recorded investment (as of period end)¹			Related allowance (as of period end)
Troubled debt restructurings
Real estate:
Residential 1-4 family																						2	$	427		$	19		2	$	427		$	19
Commercial real estate																						—	—			—			—	—			—
Home equity line of credit																						16	1,571			283			52	6,540			930
Residential land																						2	1,343			—			2	1,343			—
Commercial construction																						—	—			—			—	—			—
Residential construction																						—	—			—			—	—			—
Commercial																						6	255			174			13	2,381			218
Consumer																						—	—			—			—	—			—
																						26	$	3,596		$	476		69	$	10,691		$	1,167


¹	~~The reported balances include loans that became TDR during the period, and were fully paid-off, charged-off, or sold prior to period end.~~


¹	The period end balances reflect all paydowns and charge-offs since the modification period. TDRs fully paid off, charged-off, or foreclosed upon by period end are not included.



(in thousands)	Gross carrying amount¹		Accumulated amortization¹			Valuation allowance		Net carrying amount
September 30, 2018	$	18,543	$	(10,117	)	$	—	$	8,426
December 31, 2017	17,511		(8,872		)	—		8,639



(in thousands)	Gross carrying amount		Accumulated amortization			Valuation allowance		Net carrying amount
September 30, 2019	$	20,413	$	(11,846	)	$	—	$	8,567
December 31, 2018	18,556		(10,494		)	—		8,062


(in millions)	Gross amount of recognized liabilities		Gross amount offset in the Balance Sheet		Net amount of liabilities presented in the Balance Sheet		Gross amount of recognized liabilities		Gross amount offset in the Balance Sheets		Net amount of liabilities presented in the Balance Sheets
Repurchase agreements
September 30, 2018	$	71	$	—	$	71
December 31, 2017	141		—		141
September 30, 2019							$	91	$	—	$	91
December 31, 2018							65		—		65



	Gross amount not offset in the Balance Sheets
(in millions)	Net amount of liabilities presented in the Balance Sheets		Financial instruments		Cash collateral pledged
Commercial account holders
September 30, 2019	$	91	$	111	$	—
December 31, 2018	65		92		—



	Series 2018A	Series 2018B	Series 2018C
Aggregate principal amount	$67.5 million	$17.5 million	$15 million
Fixed coupon interest rate	4.38%	4.53%	4.72%
Maturity date	May 30, 2028	March 30, 2033	May 30, 2048
Principal amount by company:
Hawaiian Electric	$52 million	$12.5 million	$10.5 million
Hawaii Electric Light	$9 million	$3 million	$3 million
Maui Electric	$6.5 million	$2 million	$1.5 million



	Series 2019A
Aggregate principal amount	$50 million
Fixed coupon interest rate	4.21%
Maturity date	May 15, 2034
Principal amount by company:
Hawaiian Electric	$30 million
Hawaii Electric Light	$10 million
Maui Electric	$10 million



	HEI Series 2018A	HEI Series 2018B
Aggregate principal amount due at maturity	$50 million	$100 million
Fixed coupon interest rate	4.58%	4.72%
Maturity date	December 15, 2025	December 15, 2028
Draw date	October 4, 2018	December 18, 2018



			Estimated fair value
	Carrying or notional amount		Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
(in thousands)			(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2019
Financial assets
HEI consolidated
Available-for-sale investment securities	$	1,210,748	$	—	$	1,182,289	$	28,459	$	1,210,748
Held-to-maturity investment securities	132,704		—		137,497		—		137,497
Stock in Federal Home Loan Bank	9,953		—		9,953		—		9,953
Loans, net	5,048,411		—		17,164		5,121,275		5,138,439
Mortgage servicing rights	8,567		—		—		11,485		11,485
Derivative assets	58,473		2		484		—		486
Financial liabilities
HEI consolidated
Deposit liabilities	783,308		—		779,370		—		779,370
Short-term borrowings—other than bank	163,836		—		163,836		—		163,836
Other bank borrowings	129,190		—		129,187		—		129,187
Long-term debt, net—other than bank	1,885,454		—		2,085,217		—		2,085,217
Derivative liabilities	63,391		18		2,901		—		2,919
Hawaiian Electric consolidated
Short-term borrowings	112,353		—		112,353		—		112,353
Long-term debt, net	1,418,220		—		1,594,271		—		1,594,271
December 31, 2018
Financial assets
HEI consolidated
Available-for-sale investment securities	1,388,533		—		1,364,897		23,636		1,388,533
Held-to-maturity investment securities	141,875		—		142,057		—		142,057
Stock in Federal Home Loan Bank	9,958		—		9,958		—		9,958
Loans, net	4,792,707		—		1,809		4,800,244		4,802,053
Mortgage servicing rights	8,062		—		—		13,618		13,618
Derivative assets	10,180		—		91		—		91
Financial liabilities
HEI consolidated
Deposit liabilities	827,841		—		817,667		—		817,667
Short-term borrowings—other than bank	73,992		—		73,992		—		73,992
Other bank borrowings	110,040		—		110,037		—		110,037
Long-term debt, net—other than bank	1,879,641		—		1,904,261		—		1,904,261
Derivative liabilities	34,132		34		596		—		630
Hawaiian Electric consolidated
Short-term borrowings	25,000		—		25,000		—		25,000
Long-term debt, net	1,418,802		—		1,443,968		—		1,443,968



(in thousands, except per	Three months ended September 30				%
share amounts)	2018		2017		change		Primary reason(s)*
Revenues	$	768,048	$	673,185	14		Increases for the electric utility and bank segments
Operating income	98,064		111,473		(12	)	Decrease for the electric utility segment, partly offset by increase for the bank segment and lower operating losses for the “other” segment
Net income for common stock	65,900		60,073		10		Higher net income at the electric utility and bank segments. See below for effective tax rate explanation.
Basic earnings per common share	$	0.61	$	0.55	11		Higher net income
Weighted-average number of common shares outstanding	108,879		108,786		—		Issuances of shares under compensation stock plans.


	Average balance		Balance				Average balance		Balance
(in millions)	Nine months ended September 30, 2018		September 30, 2018		December 31, 2017		Nine months ended September 30, 2019		September 30, 2019		December 31, 2018
Commercial paper	$	49	$	68	$	63	$	40	$	52	$	49
Line of credit draws	—		—		—		—		—		—
Undrawn capacity under HEI’s line of credit facility			150		150				150		150



Three months ended September 30				Increase
2018		2017		(decrease)						(dollars in millions, except per barrel amounts)
$	687	$	599	$	88					Revenues. Net increase largely due to:
							$	57		higher fuel oil prices¹
							26			higher purchased power energy costs²
							11			higher rate relief
							8			higher KWH generated
							6			higher RAM and MPIR revenues
							(7		)	lower KWH purchased
							(12		)	Tax reform adjustment
207		146		61						Fuel oil expense. Increase due to higher fuel oil prices and higher KWH generated
178		160		18						Purchased power expense. Net increase due to:
							24			higher purchased power energy price
							(6		)	lower KWH purchased
114		99		15						Operation and maintenance expenses. Net increase due to:
							6			reset of pension costs included in rates as part of rate case interim decisions
							2			25KV underground circuit repair work
							2			higher operation and maintenance expenses for generation plants
							1			operation expenses for Schofield Generating Station placed in service in June
							1			higher workers’ compensation claims
							1			higher medical premium costs
							1			higher underground cable maintenance costs
116		105		11						Other expenses. Increase due to higher revenue taxes from higher revenue, coupled with higher depreciation expense for plant investments in 2017
74		88		(14		)				Operating income. Decrease due to higher operation and maintenance and other expenses, offset in part by higher revenue
50		47		3						Net income for common stock. Increase due to higher RAM and MPIR revenues, rate relief and lower income taxes, offset in part by higher expenses, including interest expense. See below for discussion on effective tax rate.

2,329		2,340		(11		)				Kilowatthour sales (millions)³
$	90.93	$	66.73	$	24.20					Average fuel oil cost per barrel¹


1	The rate schedules of the electric utilities currently contain energy cost adjustment clauses (ECACs) through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers.


3	KWH sales were lower when compared to the same quarter in the prior year due largely to continued energy efficiency and conservation efforts by customers and increasing levels of private customer-sited renewable generation.


1)	Net Energy Metering (NEM) provides bill credit for the energy supplied from the customer’s renewable system at the retail rate of energy delivered from the system. The NEM program was capped at 2015 levels and has been closed to new participants. Non-export customer systems can be added to NEM systems and NEM customers are allowed to add non-export energy storage.


2)	Customer Grid Supply (CGS) allows customers to receive credit on their bills for energy delivered to the grid at specified rates for the energy delivered. Caps on availability of the CGS program on each island system apply and customers currently under the CGS program are grandfathered under rates which are fixed until 2022.


4)	Smart Export program is designed for PV systems with battery storage and features zero compensation during mid-day, but enhanced compensation at other times of the day to reflect the value of the energy to the grid at different times of the day. Caps on availability of the Smart Export program on each island system apply and rates are fixed until 2022.


5)	~~Customer Self Supply program is designed for customers with renewable systems who are connected and may receive energy from but do not export to the grid.~~



%	Rate-making Return on rate base (RORB)*						ROACE**						Rate-making ROACE***
Twelve months ended September 30, 2018	Hawaiian Electric		Hawaii Electric Light		Maui Electric		Hawaiian Electric		Hawaii Electric Light		Maui Electric		Hawaiian Electric		Hawaii Electric Light		Maui Electric
Utility returns	6.32		7.32		5.99		6.99		8.34		7.10		7.55		8.83		6.94
PUC-allowed returns	7.57		7.80		7.43		9.50		9.50		9.50		9.50		9.50		9.50
Difference	(1.25	)	(0.48	)	(1.44	)	(2.51	)	(1.16	)	(2.40	)	(1.95	)	(0.67	)	(2.56	)



Test year (dollars in millions)	Date (filed/ implemented)	Amount			% over rates in effect	ROACE (%)	RORB (%)	Rate base		Common equity %	Stipulated agreement reached with Consumer Advocate
Hawaiian Electric
2017 ¹
Request	12/16/16	$	106.4		6.9	10.60	8.28	$	2,002	57.36	Yes
Interim increase	2/16/18	36.0			2.3	9.50	7.57	1,980		57.10
Interim increase with Tax Act	4/13/18	(0.6		)	—	9.50	7.57	1,993		57.10
Final increase	9/1/18	(0.6		)	—	9.50	7.57	1,993		57.10
Hawaii Electric Light
2016²
Request	9/19/16	$	19.3		6.5	10.60	8.44	$	479	57.12	Yes
Interim increase	8/31/17	9.9			3.4	9.50	7.80	482		56.69
Interim increase with Tax Act	5/1/18	1.5			0.5	9.50	7.80	481		56.69
Final increase	10/1/18	—			—	9.50	7.80	481		56.69
Maui Electric
2018
Request	10/12/17	$	30.1		9.3	10.60	8.05	$	473	56.94	Yes
Interim increase	8/23/18	12.5			3.82	9.50	7.43	462		57.02



	Nine months ended September 30,
(in thousands)	2018			2017			Change
Net cash provided by operating activities	$	193,722		$	258,873		$	(65,151	)
Net cash used in investing activities	(300,558		)	(258,258		)	(42,300		)
Net cash provided by (used in) financing activities	101,543			(64,914		)	166,457