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Section 1: 10-K (10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
  
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number
 
Registrant; State of Incorporation;
Address; and Telephone Number
 
I.R.S. Employer
Identification No.
1-8503
 
HAWAIIAN ELECTRIC INDUSTRIES, INC., a Hawaii corporation
1001 Bishop Street, Suite 2900, Honolulu, Hawaii 96813
Telephone (808) 543-5662
 
99-0208097
1-4955
 
HAWAIIAN ELECTRIC COMPANY, INC., a Hawaii corporation
900 Richards Street, Honolulu, Hawaii 96813
Telephone (808) 543-7771
 
99-0040500

Securities registered pursuant to Section 12(b) of the Act:
Registrant
 
Title of each class
 
Name of each exchange
on which registered
Hawaiian Electric Industries, Inc.
 
Common Stock, Without Par Value
 
New York Stock Exchange
Hawaiian Electric Company, Inc.
 
Guarantee with respect to 6.50% Cumulative Quarterly
Income Preferred Securities Series 2004 (QUIPSSM)
of HECO Capital Trust III
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Registrant
 
Title of each class
Hawaiian Electric Industries, Inc.
 
None
Hawaiian Electric Company, Inc.
 
Cumulative Preferred Stock
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 
Hawaiian Electric Industries Inc.  Yes   X     No     
Hawaiian Electric Company, Inc.  Yes          No   X  
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
Hawaiian Electric Industries Inc.  Yes          No   X  
Hawaiian Electric Company, Inc.  Yes          No   X  
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Hawaiian Electric Industries Inc.  Yes   X     No     
Hawaiian Electric Company, Inc.  Yes   X     No     
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Hawaiian Electric Industries Inc.  Yes   X     No     
Hawaiian Electric Company, Inc.  Yes   X     No     
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [ ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Hawaiian Electric Industries Inc.
Large accelerated filer  X 
Accelerated filer     
Non-accelerated filer     
(Do not check if a smaller reporting company)
Smaller reporting company       
Emerging growth company       
Hawaiian Electric Company, Inc.
Large accelerated filer     
Accelerated filer     
Non-accelerated filer  X 
(Do not check if a smaller reporting company)
Smaller reporting company       
Emerging growth company       
 
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.  Yes          No      
Hawaiian Electric Company, Inc.  Yes          No      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Hawaiian Electric Industries Inc.  Yes          No   X  
Hawaiian Electric Company, Inc.  Yes          No   X  
 
 
 
 
Aggregate market value
of the voting and non-
voting common equity
held by non-affiliates of
the registrants as of
 
Number of shares of common stock
 outstanding of the registrants as of
 
 
June 30, 2017
 
June 30, 2017
 
February 13, 2018
Hawaiian Electric Industries, Inc. (HEI)
 
$3,522,474,037
 
108,785,486
(Without par value)
 
108,841,157
(Without par value)
Hawaiian Electric Company, Inc. (Hawaiian Electric)
 
None
 
16,019,785
 ($6 2/3 par value)
 
16,142,216
 ($6 2/3 par value)
 
 
 
 
 
 
 
 
DOCUMENTS INCORPORATED BY REFERENCE

Hawaiian Electric’s Exhibit 99.1, consisting of:
Hawaiian Electric’s Directors, Executive Officers and Corporate Governance—Part III
Hawaiian Electric’s Executive Compensation—Part III
Hawaiian Electric’s Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—
Part III
Hawaiian Electric’s Certain Relationships and Related Transactions, and Director Independence—Part III
Hawaiian Electric’s Principal Accounting Fees and Services—Part III

Selected sections of Proxy Statement of HEI for the 2018 Annual Meeting of Shareholders to be filed-Part III
 
 
This combined Form 10-K represents separate filings by Hawaiian Electric Industries, Inc. and Hawaiian Electric Company, Inc. Information contained herein relating to any individual registrant is filed by each registrant on its own behalf. Hawaiian Electric makes no representations as to any information not relating to it or its subsidiaries.
 




TABLE OF CONTENTS
 
 
Page
 
 
 
Cautionary Note Regarding Forward-Looking Statements
 
 
 
 
 
 
 
Executive Officers of the Registrant (HEI)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 


i



GLOSSARY OF TERMS
Defined below are certain terms used in this report:
Terms
 
Definitions
 
 
 
ABO
 
Accumulated benefit obligation
ADIT
 
Accumulated deferred income tax balances
AES Hawaii
 
AES Hawaii, Inc.
AFS
 
Available-for-sale
AFUDC
 
Allowance for funds used during construction
AOCI
 
Accumulated other comprehensive income (loss)
AOS
 
Adequacy of supply
APBO
 
Accumulated postretirement benefit obligation
ARO
 
Asset retirement obligations
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
Btu
 
British thermal unit
CAA
 
Clean Air Act
CERCLA
 
Comprehensive Environmental Response, Compensation and Liability Act
Chevron
 
Chevron Products Company, which assigned their fuel oil supply contracts with the Utilities to Island Energy Services, LLC.
CIAC
 
Contributions in aid of construction
CIP CT-1
 
Campbell Industrial Park 110 MW combustion turbine No. 1
CIS
 
Customer Information System
Company
 
When used in Hawaiian Electric Industries, Inc. sections and in the Notes to Consolidated Financial Statements, “Company” refers to 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.; HEI Properties, Inc. (dissolved in 2015 and wound up in 2017); The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.); and Pacific Current, LLC and its subsidiaries, Hamakua Holdings, LLC (and its subsidiary, Hamakua Energy, LLC) and Mauo Holdings, LLC (and its subsidiary, Mauo, LLC)
When used in Hawaiian Electric Company, Inc. sections, “Company” refers to Hawaiian Electric Company, Inc. and its direct subsidiaries.
Consolidated Financial Statements
 
HEI’s and Hawaiian Electric's combined Consolidated Financial Statements, including notes, in Item 8 of this Form 10-K
Consumer Advocate
 
Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
CBRE
 
Community-based renewable energy
D&O
 
Decision and order from the PUC
DBEDT
 
State of Hawaii Department of Business Economic Development and Tourism
DBF
 
State of Hawaii Department of Budget and Finance
DG
 
Distributed generation
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
DSM
 
Demand-side management
ECAC
 
Energy cost adjustment clause
EEPS
 
Energy Efficiency Portfolio Standards
EGU
 
Electrical generating unit
EIP
 
2010 Executive Incentive Plan, as amended
EPA
 
Environmental Protection Agency - federal
EPS
 
Earnings per share
ERISA
 
Employee Retirement Income Security Act of 1974, as amended
ERL
 
Environmental Response Law of the State of Hawaii
ERP/EAM
 
Enterprise Resource Planning/Enterprise Asset Management

ii



GLOSSARY OF TERMS (continued)

Terms
 
Definitions
 
 
 
Exchange Act
 
Securities Exchange Act of 1934
FASB
 
Financial Accounting Standards Board
FDIC
 
Federal Deposit Insurance Corporation
FDICIA
 
Federal Deposit Insurance Corporation Improvement Act of 1991
federal
 
U.S. Government
FERC
 
Federal Energy Regulatory Commission
FHLB
 
Federal Home Loan Bank
FHLMC
 
Federal Home Loan Mortgage Corporation
FICO
 
Fair Isaac Corporation
Fitch
 
Fitch Ratings, Inc.
FNMA
 
Federal National Mortgage Association
FRB
 
Federal Reserve Board
GAAP
 
Accounting principles generally accepted in the United States of America
GHG
 
Greenhouse gas
GNMA
 
Government National Mortgage Association
Gramm Act
 
Gramm-Leach-Bliley Act of 1999
Hawaii Electric Light
 
Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.
Hawaiian Electric
 
Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited, HECO Capital Trust III (unconsolidated financing subsidiary), Renewable Hawaii, Inc. and Uluwehiokama Biofuels Corp.
Hawaiian Electric’s MD&A
 
Hawaiian Electric Company, Inc.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K
HEI
 
Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB Hawaii, Inc., HEI Properties, Inc. (dissolved in 2015 and wound up in 2017), The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.) and Pacific Current, LLC
HEI's 2018 Proxy Statement
 
Selected sections of Proxy Statement for the 2018 Annual Meeting of Shareholders of Hawaiian Electric Industries, Inc. to be filed after the date of this Form 10-K, which are incorporated in this Form 10-K by reference
HEI’s MD&A
 
Hawaiian Electric Industries, Inc.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K
HEIPI
 
HEI Properties, Inc. (dissolved in 2015 and wound up in 2017), a wholly-owned subsidiary of Hawaiian Electric Industries, Inc.
HEIRSP
 
Hawaiian Electric Industries Retirement Savings Plan
HELOC
 
Home equity line of credit
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.
HPOWER
 
City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
HTB
 
Hawaiian Tug & Barge Corp. On November 10, 1999, HTB sold substantially all of its operating assets and the stock of its subsidiary, Young Brothers, Limited, and changed its name to The Old Oahu Tug Services, Inc.
HTM
 
Held-to-maturity
IPP
 
Independent power producer
IRP
 
Integrated resource plan
IRR
 
Interest rate risk
Island Energy
 
Island Energy Services, LLC (a fuel oil supplier and subsidiary of One Rock Capital Partners, L.P.), who purchased Chevron's Hawaii assets on November 1, 2016 and was assigned Chevron's fuel oil supply contracts with the Utilities.
Kalaeloa
 
Kalaeloa Partners, L.P.
kV
 
Kilovolt
kW
 
Kilowatt/s (as applicable)
KWH
 
Kilowatthour/s (as applicable)
LNG
 
Liquefied natural gas
LSFO
 
Low sulfur fuel oil
LTIP
 
Long-term incentive plan

iii



GLOSSARY OF TERMS (continued)

Terms
 
Definitions
 
 
 
MATS
 
Mercury and Air Toxics Standards
Maui Electric
 
Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
MBtu
 
Million British thermal unit
MD&A
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Merger
 
As provided in the Merger Agreement (see below), merger of NEE Acquisition Sub II, Inc. with and into HEI, with HEI surviving, and then merger of HEI with and into NEE Acquisition Sub I, LLC, with NEE Acquisition Sub I, LLC surviving as a wholly owned subsidiary of NextEra Energy, Inc.
Merger Agreement
 
Agreement and Plan of Merger by and among HEI, NextEra Energy, Inc., NEE Acquisition Sub II, Inc. and NEE Acquisition Sub I, LLC, dated December 3, 2014 and terminated July 16, 2016
Moody’s
 
Moody’s Investors Service’s
MOU
 
Memorandum of Understanding
MPIR
 
Major Project Interim Recovery
MSFO
 
Medium sulfur fuel oil
MSR
 
Mortgage servicing right
MW
 
Megawatt/s (as applicable)
MWh
 
Megawatthour/s (as applicable)
NA
 
Not applicable
NAAQS
 
National Ambient Air Quality Standard
NEE
 
NextEra Energy, Inc.
NEM
 
Net energy metering
NII
 
Net interest income
NM
 
Not meaningful
NPBC
 
Net periodic benefits costs
NPPC
 
Net periodic pension costs
NQSO
 
Nonqualified stock options
O&M
 
Other operation and maintenance
OCC
 
Office of the Comptroller of the Currency
OPEB
 
Postretirement benefits other than pensions
OTS
 
Office of Thrift Supervision, Department of Treasury
OTTI
 
Other-than-temporary impairment
PBO
 
Projected benefit obligation
PCB
 
Polychlorinated biphenyls
PGV
 
Puna Geothermal Venture
PPA
 
Power purchase agreement
PPAC
 
Purchased power adjustment clause
PSD
 
Prevention of Significant Deterioration
PSIPs
 
Power Supply Improvement Plans
PUC
 
Public Utilities Commission of the State of Hawaii
PURPA
 
Public Utility Regulatory Policies Act of 1978
PV
 
Photovoltaic
QF
 
Qualifying Facility under the Public Utility Regulatory Policies Act of 1978
QTL
 
Qualified Thrift Lender
RAM
 
Rate adjustment mechanism
RBA
 
Revenue balancing account
Registrant
 
Each of Hawaiian Electric Industries, Inc. and Hawaiian Electric Company, Inc.
REIP
 
Renewable Energy Infrastructure Program
RFP
 
Request for proposals
RHI
 
Renewable Hawaii, Inc., a wholly-owned nonregulated subsidiary of Hawaiian Electric Company, Inc.
ROA
 
Return on assets
ROACE
 
Return on average common equity
RORB
 
Return on rate base
RPS
 
Renewable portfolio standards
S&P
 
Standard & Poor’s
SAR
 
Stock appreciation right

iv



GLOSSARY OF TERMS (continued)

Terms
 
Definitions
 
 
 
SEC
 
Securities and Exchange Commission
See
 
Means the referenced material is incorporated by reference (or means refer to the referenced section in this document or the referenced exhibit or other document)
SLHCs
 
Savings & Loan Holding Companies
SOIP
 
1987 Stock Option and Incentive Plan, as amended. Shares of HEI common stock reserved for issuance under the SOIP were deregistered and delisted in 2015.
Spin-Off
 
The previously planned distribution to HEI shareholders of all of the common stock of ASB Hawaii immediately prior to the Merger, which was terminated
SPRBs
 
Special Purpose Revenue Bonds
ST
 
Steam turbine
state
 
State of Hawaii
Tax Act
 
2017 Tax Cuts and Jobs Act (H.R. 1, An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018)
TDR
 
Troubled debt restructuring
Tesoro
 
Tesoro Hawaii Corporation dba BHP Petroleum Americas Refining Inc., a fuel oil supplier
TOOTS
 
The Old Oahu Tug Service, Inc., a wholly-owned subsidiary of Hawaiian Electric Industries, Inc.
Trust III
 
HECO Capital Trust III
UBC
 
Uluwehiokama Biofuels Corp., a wholly-owned nonregulated subsidiary of Hawaiian Electric Company, Inc.
Utilities
 
Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited
VIE
 
Variable interest entity


v



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:
international, national and local economic and political conditions--including the state of the Hawaii tourism, defense and construction industries; the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by ASB, which could result in higher loan loss provisions and write-offs); decisions concerning the extent of the presence of the federal government and military in Hawaii; the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions; and the potential impacts of global developments (including global economic conditions and uncertainties; unrest; the conflict in Syria; the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade; terrorist acts by ISIS or others; potential conflict or crisis with North Korea; and potential pandemics);
the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling, monetary policy and policy and regulation changes advanced or proposed by President Trump and his administration;
weather and natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes, lava flows and the potential effects of climate change, such as more severe storms and rising sea levels), including their impact on the Company's and Utilities' operations and the economy;
the timing and extent of changes in interest rates and the shape of the yield curve;
the ability of the Company and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and long-term debt financing, including lines of credit, and, in the case of HEI, to issue common stock) under volatile and challenging market conditions, and the cost of such financings, if available;
the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale;
changes in laws, regulations (including tax regulations), market conditions and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements;
the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that the Dodd-Frank Act requires to be promulgated;
increasing competition in the banking industry (e.g., increased price competition for deposits, or an outflow of deposits to alternative investments, which may have an adverse impact on ASB’s cost of funds);
the potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or proposed) renewable energy proposals and related costs; reliance by the Utilities on outside parties such as the state, independent power producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet renewable portfolio standards (RPS) goals and the impacts of implementation of the renewable energy proposals on future costs of electricity;
the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans (PSIPs), Demand Response Portfolio Plan, Distributed Generation Interconnection Plan, Grid Modernization Plans, and business model changes, which have been and are continuing to be developed and updated in response to the orders issued by the PUC in April 2014, its April 2014 inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals, and subsequent orders of the PUC;
capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management (DSM), distributed generation (DG), combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand;
fuel oil price changes, delivery of adequate fuel by suppliers and the continued availability to the electric utilities of their energy cost adjustment clauses (ECACs);
the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), rate adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales;
the impact of fuel price volatility on customer satisfaction and political and regulatory support for the Utilities;
the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;
the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities' electric systems and as customers reduce their energy usage;
the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);

vi



the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units;
the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements;
new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors such as the commercial development of energy storage and microgrids and banking through alternative channels;
cyber security risks and the potential for cyber incidents, including potential incidents at HEI, ASB and the Utilities (including at ASB branches and electric utility plants) and incidents at data processing centers they use, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general information technology controls;
federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);
developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies;
discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight;
decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);
decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS);
potential enforcement actions by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy);
the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by RAMs;
the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);
changes in accounting principles applicable to HEI, the Utilities and ASB, including the adoption of new U.S. accounting standards, the potential discontinuance of regulatory accounting and the effects of potentially required consolidation of variable interest entities (VIEs) or required capital lease accounting for PPAs with IPPs;
changes by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and the results of financing efforts;
faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB;
changes in ASB’s loan portfolio credit profile and asset quality which may increase or decrease the required level of provision for loan losses, allowance for loan losses and charge-offs;
changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds;
the final outcome of tax positions taken by HEI, the Utilities and ASB;
the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits); and
other risks or uncertainties described elsewhere in this report (e.g., Item 1A. Risk Factors) and in other reports previously and subsequently filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission (SEC).
Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, ASB and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether written or oral and whether as a result of new information, future events or otherwise.


vii



PART I
ITEM 1.
BUSINESS
HEI Consolidated
HEI and subsidiaries and lines of business.  HEI was incorporated in 1981 under the laws of the State of Hawaii and is a holding company with its principal subsidiaries engaged in electric utility and banking businesses operating primarily in the State of Hawaii. HEI’s predecessor, Hawaiian Electric, was incorporated under the laws of the Kingdom of Hawaii (now the State of Hawaii) on October 13, 1891. As a result of a 1983 corporate reorganization, Hawaiian Electric became an HEI subsidiary and common shareholders of Hawaiian Electric became common shareholders of HEI.
Hawaiian Electric and its operating utility subsidiaries, Hawaii Electric Light Company, Inc. (Hawaii Electric Light) and Maui Electric Company, Limited (Maui Electric), are regulated electric public utilities. Hawaiian Electric also owns all the common securities of HECO Capital Trust III (a Delaware statutory trust), which was formed to effect the issuance of $50 million of cumulative quarterly income preferred securities in 2004, for the benefit of Hawaiian Electric, Hawaii Electric Light and Maui Electric. In December 2002, Hawaiian Electric formed a subsidiary, Renewable Hawaii, Inc., to invest in renewable energy projects, but it has made no investments and currently is inactive. In September 2007, Hawaiian Electric formed another subsidiary, Uluwehiokama Biofuels Corp. (UBC), to invest in a biodiesel refining plant to be built on the island of Maui, which project has been terminated.
Besides Hawaiian Electric and its subsidiaries, HEI also currently owns directly or indirectly the following subsidiaries:  ASB Hawaii, Inc. (ASB Hawaii) (a holding company, formerly known as American Savings Holdings, Inc.) and its subsidiary, American Savings Bank, F.S.B. (ASB); HEI Properties, Inc. (HEIPI), which was dissolved on December 11, 2015 and wound up in June 2017; The Old Oahu Tug Service, Inc. (TOOTS); and Pacific Current, LLC, and its direct and indirect subsidiaries.
ASB, acquired by HEI in 1988, is one of the largest financial institutions in the State of Hawaii with assets of $6.8 billion as of December 31, 2017.
TOOTS administers certain employee and retiree-related benefit programs and monitors matters related to its predecessor’s former maritime freight transportation operations.
In September 2017, HEI formed new 100% owned subsidiaries—Pacific Current, LLC and its subsidiary Hamakua Holdings, LLC and its subsidiary, Hamakua Energy, LLC. On November 24, 2017, Hamakua Energy, LLC acquired Hamakua Energy Partners, L.P.’s 60-megawatt combined cycle power plant and other assets from affiliates of ArcLight Capital Partners, a private equity firm focused on energy infrastructure investments. The plant sells power to Hawaii Electric Light under an existing power purchase agreement (PPA) that expires in 2030.
In November 2017, HEI formed new 100% owned subsidiaries—Mauo Holdings, LLC (a 100% owned subsidiary of Pacific Current, LLC) and its subsidiary, Mauo, LLC. See Note 2 in the Notes to the Consolidated Financial Statements.
Termination of proposed Merger. For information concerning the termination of HEI's Merger Agreement with NextEra Energy, Inc., see Note 15 of the Consolidated Financial Statements.
Additional information.  For additional information about HEI, see HEI’s MD&A, HEI’s “Quantitative and Qualitative Disclosures about Market Risk” and HEI’s Consolidated Financial Statements, including the Notes thereto.
The Company’s website address is www.hei.com. The information on the Company’s website is not incorporated by reference in this annual report on Form 10-K unless, and except to the extent, specifically incorporated herein by reference. HEI and Hawaiian Electric currently make available free of charge through this website their annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports (since 1994) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. HEI and Hawaiian Electric intend to continue to use HEI’s website as a means of disclosing additional information. Such disclosures will be included on HEI’s website in the Investor Relations section. Accordingly, investors should routinely monitor such portions of HEI’s website, in addition to following HEI’s, Hawaiian Electric’s and ASB’s press releases, SEC filings and public conference calls and webcasts. Investors may also wish to refer to the PUC website at dms.puc.hawaii.gov/dms in order to review documents filed with and issued by the PUC. No information at the PUC website is incorporated herein by reference.
Commitments and contingencies.  See “HEI Consolidated—Liquidity and capital resources –Selected contractual obligations and commitments” in HEI’s MD&A, Hawaiian Electric’s “Commitments and contingencies” below and Note 4 of the Consolidated Financial Statements.

1



Regulation.  HEI and Hawaiian Electric are each holding companies within the meaning of the Public Utility Holding Company Act of 2005 and implementing regulations, which requires holding companies and their subsidiaries to grant the Federal Energy Regulatory Commission (FERC) access to books and records relating to FERC’s jurisdictional rates. FERC granted HEI and Hawaiian Electric a waiver from its record retention, accounting and reporting requirements, effective May 2006.
HEI is subject to an agreement entered into with the PUC (the PUC Agreement) which, among other things, requires PUC approval of any change in control of HEI. The PUC Agreement also requires HEI to provide the PUC with periodic financial information and other reports concerning intercompany transactions and other matters. It also prohibits the electric utilities from loaning funds to HEI or its nonutility subsidiaries and from redeeming common stock of the electric utility subsidiaries without PUC approval. Further, the PUC could limit the ability of the electric utility subsidiaries to pay dividends on their common stock. See “Restrictions on dividends and other distributions” and “Electric utility—Regulation” below.
HEI and ASB Hawaii are subject to Federal Reserve Board (FRB) regulation, supervision and reporting requirements as savings and loan holding companies. As a result of the enactment of the Dodd-Frank Act, supervision and regulation of HEI and ASB Hawaii, as thrift holding companies, moved to the FRB, and supervision and regulation of ASB, as a federally chartered savings bank, moved to the Office of the Comptroller of the Currency (OCC) in July 2011. In the event the OCC has reasonable cause to believe that any activity of HEI or ASB Hawaii constitutes a serious risk to the financial safety, soundness or stability of ASB, the OCC is authorized to impose certain restrictions on HEI, ASB Hawaii and/or any of their subsidiaries. Possible restrictions include precluding or limiting: (i) the payment of dividends by ASB; (ii) transactions between ASB, HEI or ASB Hawaii, and their subsidiaries or affiliates; and (iii) any activities of ASB that might expose ASB to the liabilities of HEI and/or ASB Hawaii and their other affiliates. See “Restrictions on dividends and other distributions” below.
Bank regulations generally prohibit savings and loan holding companies and their nonthrift subsidiaries from engaging in activities other than those which are specifically enumerated in the regulations. However, the unitary savings and loan holding company relationship among HEI, ASB Hawaii and ASB is “grandfathered” under the Gramm-Leach-Bliley Act of 1999 (Gramm Act) so that HEI and its subsidiaries are able to continue to engage in their current activities so long as ASB satisfies the qualified thrift lender (QTL) test discussed under “Bank—Regulation—Qualified thrift lender test.” ASB met the QTL test at all times during 2017; however, the failure of ASB to satisfy the QTL test in the future could result in a need for HEI to divest ASB.
HEI is also affected by provisions of the Dodd-Frank Act relating to corporate governance and executive compensation, including provisions requiring shareholder “say on pay” and “say on pay frequency” votes, mandating additional disclosures concerning executive compensation and compensation consultants and advisors and further restricting proxy voting by brokers in the absence of instructions. See “Bank—Legislation and regulation” in HEI’s MD&A for a discussion of effects of the Dodd-Frank Act on HEI and ASB.
Restrictions on dividends and other distributions.  HEI is a legal entity separate and distinct from its various subsidiaries. As a holding company with no significant operations of its own, HEI’s principal sources of funds are dividends or other distributions from its operating subsidiaries, borrowings and sales of equity. The rights of HEI and, consequently, its creditors and shareholders, to participate in any distribution of the assets of any of its subsidiaries are subject to the prior claims of the creditors and preferred shareholders of such subsidiary, except to the extent that claims of HEI in its capacity as a creditor are recognized as primary.
The abilities of certain of HEI’s subsidiaries to pay dividends or make other distributions to HEI are subject to contractual and regulatory restrictions. Under the PUC Agreement, in the event that the consolidated common stock equity of the electric utility subsidiaries falls below 35% of the total capitalization of the electric utilities (including the current maturities of long-term debt, but excluding short-term borrowings), the electric utility subsidiaries would, absent PUC approval, be restricted in their payment of cash dividends to 80% of the earnings available for the payment of dividends in the current fiscal year and preceding five years, less the amount of dividends paid during that period. The PUC Agreement also provides that the foregoing dividend restriction shall not be construed as relinquishing any right the PUC may have to review the dividend policies of the electric utility subsidiaries. As of December 31, 2017, the consolidated common stock equity of HEI’s electric utility subsidiaries was 57% of their total capitalization (as calculated for purposes of the PUC Agreement). As of December 31, 2017, Hawaiian Electric and its subsidiaries had common stock equity of $1.8 billion of which approximately $755 million was not available for transfer to HEI without regulatory approval.
The ability of ASB to make capital distributions to HEI and other affiliates is restricted under federal law. Subject to a limited exception for stock redemptions that do not result in any decrease in ASB’s capital and would improve ASB’s financial condition, ASB is prohibited from declaring any dividends, making any other capital distributions, or paying a management fee to a controlling person if, following the distribution or payment, ASB would be deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized. See “Bank—Regulation—Prompt corrective action.” All dividends are subject to

2



review by the OCC and FRB and receipt of a letter from the FRB communicating the agencies’ non-objection to the payment of any dividend ASB proposes to declare and pay to ASB Hawaii and HEI. Also see Note 12 to the Consolidated Financial Statements.
HEI and its subsidiaries are also subject to debt covenants, preferred stock resolutions and the terms of guarantees that could limit their respective abilities to pay dividends. The Company does not expect that the regulatory and contractual restrictions applicable to HEI and/or its subsidiaries will significantly affect the operations of HEI or its ability to pay dividends on its common stock.
Environmental regulation.  HEI and its subsidiaries are subject to federal and state statutes and governmental regulations pertaining to water quality, air quality and other environmental factors. See the “Environmental regulation” discussions in the “Electric utility” and “Bank” sections below.
Securities ratings.  See the Fitch Ratings, Inc. (Fitch), Moody’s Investors Service’s (Moody’s) and Standard & Poor’s (S&P) ratings of HEI’s and Hawaiian Electric’s securities and discussion under “Liquidity and capital resources” (both “HEI Consolidated” and “Electric utility”) in HEI’s MD&A. These ratings reflect only the view, at the time the ratings are issued, of the applicable rating agency from whom an explanation of the significance of such ratings may be obtained. There is no assurance that any such credit rating will remain in effect for any given period of time or that such rating will not be lowered, suspended or withdrawn entirely by the applicable rating agency if, in such rating agency’s judgment, circumstances so warrant. Any such lowering, suspension or withdrawal of any rating may have an adverse effect on the market price or marketability of HEI’s and/or Hawaiian Electric’s securities, which could increase the cost of capital of HEI and Hawaiian Electric, and could affect costs, including interest charges, under HEI's and/or Hawaiian Electric's debt securities and credit facilities. Neither HEI nor Hawaiian Electric management can predict future rating agency actions or their effects on the future cost of capital of HEI or Hawaiian Electric.
Revenue bonds have been issued by the Department of Budget and Finance of the State of Hawaii for the benefit of Hawaiian Electric and its subsidiaries, but the source of their repayment are the unsecured obligations of Hawaiian Electric and its subsidiaries under loan agreements and notes issued to the Department, including Hawaiian Electric’s guarantees of its subsidiaries’ obligations. The payment of principal and interest due on revenue bonds currently outstanding and issued prior to 2009 are insured, but the ratings of these insurers have been withdrawn—see “Electric Utility—Liquidity and capital resources” in HEI’s MD&A.
Employees.  The Company had full-time employees as follows:
December 31
2017

 
2016

 
2015

 
2014

 
2013

HEI
41

 
41

 
39

 
44

 
43

Hawaiian Electric and its subsidiaries
2,724

 
2,662

 
2,727

 
2,759

 
2,764

ASB
1,115

 
1,093

 
1,152

 
1,162

 
1,159

 
3,880

 
3,796

 
3,918

 
3,965

 
3,966

The employees of HEI and its direct and indirect subsidiaries, other than the electric utilities, are not covered by any collective bargaining agreement. The International Brotherhood of Electrical Workers Local 1260 represents roughly half of the Utilities' workforce covered by a collective bargaining agreement that expires on October 31, 2018.
Properties.  HEI leases office space from nonaffiliated lessors in downtown Honolulu under leases that expire in December 2022. See the discussions under “Electric Utility” and “Bank” below for a description of properties they own and lease.
Hamakua Energy, LLC owns a total of approximately 93 acres located on the Hamakua coast on the island of Hawaii. Its power plant is situated on approximately 59 acres and the remaining 34 acres includes surrounding parcels of which 30 acres are located on the ocean front.
Electric utility
Hawaiian Electric and subsidiaries and service areas.  Hawaiian Electric, Hawaii Electric Light and Maui Electric (Utilities) are regulated operating electric public utilities engaged in the production, purchase, transmission, distribution and sale of electricity on the islands of Oahu; Hawaii; and Maui, Lanai and Molokai, respectively. Hawaiian Electric acquired Maui Electric in 1968 and Hawaii Electric Light in 1970. In 2017, the electric utilities’ revenues and net income amounted to approximately 88% and 73% respectively, of HEI’s consolidated revenues and net income, compared to approximately 88% and 58% (impacted by a merger termination fee and other impacts at HEI corporate) in 2016 and approximately 90% and 85% in 2015, respectively.

3



The islands of Oahu, Hawaii, Maui, Lanai and Molokai have a combined population estimated at 1.4 million, or approximately 95% of the total population of the State of Hawaii, and comprise a service area of 5,815 square miles. The principal communities served include Honolulu (on Oahu), Hilo and Kona (on Hawaii) and Wailuku and Kahului (on Maui). The service areas also include numerous suburban communities, resorts, U.S. Armed Forces installations and agricultural operations. The state has granted Hawaiian Electric, Hawaii Electric Light and Maui Electric nonexclusive franchises, which authorize the Utilities to construct, operate and maintain facilities over and under public streets and sidewalks. Each of these franchises will continue in effect for an indefinite period of time until forfeited, altered, amended or repealed.
Sales of electricity.
Years ended December 31
2017
 
2016
 
2015
(dollars in thousands)
Customer accounts*
 
Electric sales revenues
 
Customer accounts*
 
Electric sales revenues
 
Customer accounts*
 
Electric sales revenues
Hawaiian Electric
304,948

 
$
1,592,016

 
304,261

 
$
1,466,225

 
302,958

 
$
1,636,245

Hawaii Electric Light
85,925

 
331,697

 
85,029

 
309,521

 
84,309

 
343,843

Maui Electric
71,352

 
323,882

 
70,872

 
306,767

 
70,533

 
343,722

 
462,225

 
$
2,247,595

 
460,162

 
$
2,082,513

 
457,800

 
$
2,323,810

* As of December 31.
Seasonality Kilowatthour (KWH) sales of the Utilities follow a seasonal pattern, but they do not experience extreme seasonal variations due to extreme weather variations experienced by some electric utilities on the U.S. mainland. KWH sales in Hawaii tend to increase in the warmer, more humid months as a result of increased demand for air conditioning.
Significant customers The Utilities derived approximately 11% of their operating revenues in 2017, 2016 and 2015 from the sale of electricity to various federal government agencies.
Under the Energy Policy Act of 2005, the Energy Independence and Security Act of 2007 and/or executive orders: (1) federal agencies must establish energy conservation goals for federally funded programs, (2) goals were set to reduce federal agencies’ energy consumption by 3% per year up to 30% by fiscal year 2015 relative to fiscal year 2003, and (3) renewable energy goals were established for electricity consumed by federal agencies. Executive Order 13693 signed in March 2015, updated the earlier provisions and adopted new reduction targets for years after fiscal year 2015, requiring federal buildings to achieve a 2.5% reduction in consumption annually. Hawaiian Electric continues to work with various federal agencies to implement measures that will help them achieve their energy reduction and renewable energy objectives.
State of Hawaii and U.S. Department of Energy MOU On September 15, 2014, the State of Hawaii and the U.S. Department of Energy executed a Memorandum of Understanding (MOU) recognizing that Hawaii is embarking on the next phase of its clean energy future. The MOU provides the framework for a comprehensive, sustained effort to better realize its vast renewable energy potential and allow Hawaii to push forward in three main areas: the power sector, transportation and energy efficiency. This next phase is focused on stimulating deployment of clean energy infrastructure as a catalyst for economic growth, energy system innovation and test bed investments.
Energy Efficiency. The PUC issued an order on January 3, 2012 approving a framework for Energy Efficiency Portfolio Standards (EEPS) that set 2008 as the initial base year for evaluation and linearly allocated the 2030 goal to interim incremental reduction goals of 1,375 GWH by 2015 and 975 GWH by each of the years 2020, 2025 and 2030. These goals may be revised through goal evaluations scheduled every five years or as the result of recommendations by an EEPS technical working group (TWG) for consideration by the PUC. Pursuant to the PUC's EEPS framework, the PUC has contracted with a public benefits fee administrator to operate and manage energy efficiency programs, and any incentive and/or penalty mechanisms related to the achievement of the goals are at the discretion of the PUC.
The Division of Consumer Advocacy’s 2017 Compliance Resolution Fund Report states that it appears Hawaii has met its 2016 Renewable Portfolio Standards and EEPS goals and is progressing towards its 2020 goals. The EEPS has contributed to lower sales; however, the implementation of decoupling has delinked sales and revenues. See "Decoupling" in Note 3 of the Consolidated Financial Statements.
Electrification of Transportation. In December 2016, a coalition of eight public, private and non-profit organizations came together to form Drive Electric Hawaii and entered into a MOU that put forth a shared a vision of supporting and promoting electrification transportation. Drive Electric Hawaii seeks to promote the use of electric vehicles, cuts fossil-fuel transportation and adds more renewable energy through collaboration on education, promotion, advocacy and infrastructure.

4



Neither HEI nor Hawaiian Electric management can predict with certainty the impact of these or other governmental mandates or MOU's on HEI’s or Hawaiian Electric’s future results of operations, financial condition or liquidity.
Selected consolidated electric utility operating statistics.
Years ended December 31
2017

 
2016

 
2015

 
2014

 
2013

KWH sales (millions)
 

 
 

 
 

 
 

 
 

Residential
2,334.5

 
2,332.7

 
2,396.5

 
2,379.7

 
2,450.9

Commercial
2,867.9

 
2,911.5

 
2,977.8

 
3,022.0

 
3,105.9

Large light and power
3,443.3

 
3,555.1

 
3,532.9

 
3,524.5

 
3,462.7

Other
44.7

 
46.0

 
49.3

 
50.0

 
50.0

 
8,690.4

 
8,845.3

 
8,956.5

 
8,976.2

 
9,069.5

KWH net generated and purchased (millions)
 
 
 
 
 
 
 
 
 
Net generated
4,888.4

 
4,940.4

 
5,124.5

 
5,131.3

 
5,352.0

Purchased
4,247.1

 
4,349.1

 
4,308.3

 
4,306.7

 
4,195.2

 
9,135.5

 
9,289.5

 
9,432.8

 
9,438.0

 
9,547.2

Losses and system uses (%)
4.7

 
4.6

 
4.8

 
4.7

 
4.8

Energy supply (December 31)
 
 
 
 
 
 
 
 
 
Net generating capability—MW
1,673

 
1,669

 
1,669

 
1,787

 
1,787

Firm and other purchased capability—MW
551

 
551

 
555

 
575

 
567

 
2,224

 
2,220

 
2,224

 
2,362

 
2,354

Net peak demand—MW1
1,584

 
1,593

 
1,610

 
1,554

 
1,535

Btu per net KWH generated
10,812

 
10,710

 
10,632

 
10,613

 
10,570

Average fuel oil cost per MBtu (cents)
1,114.3

 
862.3

 
1,206.5

 
2,087.6

 
2,103.2

Customer accounts (December 31)
 
 
 
 
 
 
 
 
 
Residential
406,241

 
402,818

 
400,655

 
398,256

 
394,910

Commercial
53,732

 
55,089

 
54,878

 
54,924

 
54,616

Large light and power
656

 
670

 
659

 
596

 
556

Other
1,596

 
1,585

 
1,608

 
1,640

 
1,660

 
462,225

 
460,162

 
457,800

 
455,416

 
451,742

Electric revenues (thousands)
 

 
 

 
 

 
 

 
 

Residential
$
691,857

 
$
638,776

 
$
709,886

 
$
879,605

 
$
892,438

Commercial
766,921

 
711,553

 
798,202

 
1,027,588

 
1,044,166

Large light and power
776,808

 
720,878

 
802,366

 
1,051,119

 
1,015,079

Other
12,009

 
11,306

 
13,356

 
17,163

 
17,008

 
$
2,247,595

 
$
2,082,513

 
$
2,323,810

 
$
2,975,475

 
$
2,968,691

Average revenue per KWH sold (cents)
25.86

 
23.54

 
25.90

 
33.15

 
32.73

Residential
29.64

 
27.38

 
29.62

 
36.96

 
36.41

Commercial
26.74

 
24.44

 
26.81

 
34.00

 
33.62

Large light and power
22.56

 
20.28

 
22.71

 
29.82

 
29.31

Other
26.82

 
24.61

 
27.05

 
34.36

 
34.02

Residential statistics
 
 
 
 
 
 
 
 
 
Average annual use per customer account (KWH)
5,779

 
5,806

 
5,996

 
6,000

 
6,220

Average annual revenue per customer account
$
1,713

 
$
1,590

 
$
1,776

 
$
2,218

 
$
2,265

Average number of customer accounts
403,983

 
401,796

 
399,674

 
396,640

 
394,024

1 
Sum of the net peak demands on all islands served, noncoincident and nonintegrated.

5



Generation statistics.  The following table contains certain generation statistics as of and for the year ended December 31, 2017. The net generating and firm purchased capability available for operation at any given time may be more or less than shown because of capability restrictions or temporary outages for inspection, maintenance, repairs or unforeseen circumstances.
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
 
 
 
 Island of
Oahu
 
Island of
Hawaii
 
Island of
Maui
 
Island of
Lanai
 
Island of
Molokai
 
Total
 
Net generating and firm purchased capability (MW) as of December 31, 20171
 
 
 
 
 
 
 
 
 
 
 
 
Conventional oil-fired steam units
999.5

 
50.1

 
35.9

 

 

 
1,085.5

 
Diesel

 
29.5

 
96.8

 
10.1

 
9.6

 
146.0

 
Combustion turbines (peaking units)
101.8

 

 

 

 

 
101.8

 
Other combustion turbines

 
46.3

 

 

 
2.2

 
48.5

 
Combined-cycle unit

 
56.3

 
113.6

 

 

 
169.9

 
Biodiesel
121.0

 

 

 

 

 
121.0

 
Firm contract power2
456.5

 
94.6

 

 

 

 
551.1

 
 
1,678.8

 
276.8

 
246.3

 
10.1

 
11.8

 
2,223.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net peak demand (MW)3
1,184.0

 
190.5

 
198.5

 
5.4

 
5.9

 
1,584.3

 
Reserve margin
41.0
%
 
45.3
%
 
25.0
%
 
87.0
%
 
100.0
%
 
42.0
%
 
Annual load factor
66.1
%
 
67.3
%
 
63.0
%
 
66.2
%
 
60.2
%
 
65.8
%
 
KWH net generated and purchased (millions)
6,854.7

 
1,123.6

 
1,094.7

 
31.4

 
31.1

 
9,135.5

 
1 
Hawaiian Electric units at normal ratings; Hawaii Electric Light and Maui Electric units at reserve ratings.
2 
Nonutility generators - Hawaiian Electric: 208 MW (Kalaeloa Partners, L.P., oil-fired), 180 MW (AES Hawaii, Inc., coal-fired) and 68.5 MW (HPOWER, refuse-fired); Hawaii Electric Light: 34.6 MW (Puna Geothermal Venture, geothermal) and 60 MW (Hamakua Energy, LLC, oil-fired).
3 
Noncoincident and nonintegrated.

Generating reliability and reserve margin.  Hawaiian Electric serves the island of Oahu and Hawaii Electric Light serves the island of Hawaii. Maui Electric has three separate electrical systems—one each on the islands of Maui, Molokai and Lanai. Hawaiian Electric, Hawaii Electric Light and Maui Electric have isolated electrical systems that are not currently interconnected to each other or to any other electrical grid and, thus, each maintains a higher level of reserve generation than is typically carried by interconnected mainland U.S. utilities, which are able to share reserve capacity. These higher levels of reserve margins are required to meet peak electric demands, to provide for scheduled maintenance of generating units (including the units operated by IPPs relied upon for firm capacity) and to allow for the forced outage of the largest generating unit in the system.
See “Adequacy of supply” in HEI’s MD&A under “Electric utility.”
Nonutility generation.  The Utilities have supported state and federal energy policies which encourage the development of renewable energy sources that reduce the use of fuel oil as well as the development of qualifying facilities. The Utilities' renewable energy sources and potential sources range from wind, solar, photovoltaic, geothermal, wave and hydroelectric power to energy produced by the municipal waste and other biofuels.
The rate schedules of the electric utilities contain ECACs and PPACs that allow them to recover costs of fuel and purchase power expenses. The PUC approved the PPACs for the first time for Hawaiian Electric, Hawaii Electric Light and Maui Electric in March 2011, February 2012 and May 2012, respectively.
In addition to the firm capacity PPAs described below, the electric utilities also purchase energy on an as-available basis directly from nonutility generators and through its Feed-In Tariff programs. The electric utilities also receive renewable energy from customers under its Net Energy Metering and Customer Grid Supply programs.
The PUC has allowed rate recovery for the firm capacity and purchased energy costs for the electric utilities’ approved firm capacity and as-available energy PPAs.

6



Hawaiian Electric firm capacity PPAs Hawaiian Electric currently has three major PPAs that provide a total of 456.5 MW of firm capacity, representing 27% of Hawaiian Electric’s total net generating and firm purchased capacity on the Island of Oahu as of December 31, 2017.
In March 1988, Hawaiian Electric entered into a PPA with AES Barbers Point, Inc. (now known as AES Hawaii, Inc. (AES Hawaii)), a Hawaii-based, indirect subsidiary of The AES Corporation. The agreement with AES Hawaii, as amended (through Amendment No. 2), provides that, for a period of 30 years beginning September 1992, Hawaiian Electric will purchase 180 megawatts (MW) of firm capacity. The AES Hawaii coal-fired cogeneration plant utilizes a “clean coal” technology and is designed to sell sufficient steam to be a “Qualifying Facility” (QF) under the Public Utility Regulatory Policies Act of 1978 (PURPA). See “Commitments and contingencies–Power purchase agreements–AES Hawaii, Inc.” in Note 3 to the Consolidated Financial Statements for an update regarding this PPA.
In October 1988, Hawaiian Electric entered into an agreement with Kalaeloa Partners, L.P. (Kalaeloa), a limited partnership, which, through affiliates, contracted to design, build, operate and maintain a QF. The agreement with Kalaeloa, as amended, provided that Hawaiian Electric would purchase 180 MW of firm capacity for a period of 25 years beginning in May 1991 and terminating in May 2016. The Kalaeloa facility is a combined-cycle operation, consisting of two oil-fired combustion turbines burning low sulfur fuel oil (LSFO) and a steam turbine that utilizes waste heat from the combustion turbines. Following two additional amendments, effective in 2005, Kalaeloa currently supplies Hawaiian Electric with 208 MW of firm capacity. In January 2011, Hawaiian Electric initiated renegotiation of the agreement with Kalaeloa (exempt from the PUC’s Competitive Bidding Framework). The PPA, as amended, automatically extends on a month-to-month basis as long as the parties are still negotiating in good faith. Hawaiian Electric and Kalaeloa have agreed that neither party will terminate the PPA prior to October 31, 2018. This agreement complements continued negotiations between the parties and accounts for time needed for PUC approval of a negotiated resolution.
Hawaiian Electric also entered into a PPA in March 1986 and a firm capacity amendment in April 1991 with the City and County of Honolulu with respect to a refuse-fired plant (HPOWER). Under the amended PPA, the HPOWER facility supplied Hawaiian Electric with 46 MW of firm capacity. In May 2012, Hawaiian Electric entered into an amended and restated PPA with the City and County of Honolulu to purchase additional firm capacity (including the then existing 46 MW) from the expanded HPOWER facility for a term of 20 years from the commercial operation date (April 2, 2013). Under the amended and restated PPA, which the PUC approved, Hawaiian Electric purchases 68.5 MW of firm capacity.
Hawaii Electric Light firm capacity PPAs As of December 31, 2017, Hawaii Electric Light has two major PPAs that provide a total of for 94.6 MW of firm capacity, representing 34% of Hawaii Electric Light's total net generating and firm purchased capacity on the Island of Hawaii as of December 31, 2017.
Hawaii Electric Light has a 35-year PPA with Puna Geothermal Venture (PGV) for 30 MW of firm capacity from its geothermal steam facility, which will expire on December 31, 2027. In February 2011, Hawaii Electric Light and PGV amended the PPA for the pricing on a portion of the energy payments and entered into a new PPA for Hawaii Electric Light to acquire an additional 8 MW of firm, dispatchable capacity. The PUC approved the amendment and the new PPA in December 2011. PGV’s expansion became commercially operational in March 2012 for a total facility capacity of 34.6 MW.
In October 1997, Hawaii Electric Light entered into an agreement with Encogen, which was succeeded by Hamakua Energy Partners, L. P. (HEP). The agreement requires Hawaii Electric Light to purchase up to 60 MW (net) of firm capacity for a period of 30 years, expiring on December 31, 2030. The dual-train combined-cycle (DTCC) facility, which primarily burns naphtha (a mixture of liquid hydrocarbons), consists of two oil-fired combustion turbines and a steam turbine that utilizes waste heat from the combustion turbines. In December 2015, Hawaii Electric Light signed an Asset Purchase Agreement (APA) to purchase the 60 MW generating plant from HEP, and in February 2016, filed an application with the PUC requesting approval of the APA. In May 2017, the PUC denied the application on the grounds that customer benefits were not sufficiently demonstrated to justify the purchase and in July 2017, the APA was terminated. In November 2017, Hamakua Energy, LLC, an indirect subsidiary of HEI, purchased the plant from HEP.
In May 2012, Hawaii Electric Light signed a PPA with Hu Honua Bioenergy, LLC (Hu Honua) for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass on the island of Hawaii. This PPA was approved by the PUC in December 2013. Per the terms of the PPA, the Hu Honua plant was scheduled to be in service in 2016, however, Hu Honua encountered construction 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 complaint 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, Hawaii Electric Light and Hu Honua entered into a settlement agreement to settle 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. The Amended and Restated PPA was approved by the PUC on July 28, 2017. On August 25, 2017,

7



the PUC's approval was appealed by a third party. The appeal is still pending. Hu Honua is expected to be on-line by the end of 2018.
Maui Electric firm capacity PPAsMaui Electric has no firm power PPAs.
Fuel oil usage and supply.  The rate schedules of the Utilities include ECACs under which electric rates (and consequently the revenues of the electric utility subsidiaries generally) are adjusted for changes in the weighted-average price paid for fuel oil and certain components of purchased power, and the relative amounts of company-generated power and purchased power. See discussion of rates and issues relating to the ECAC below under “Rates,” and “Electric utility—Certain factors that may affect future results and financial condition—Regulation of electric utility rates” and “Electric utility—Material estimates and critical accounting policies–Revenues” in HEI’s MD&A.
Hawaiian Electric’s steam generating units consume low sulfur fuel oil (LSFO) and Hawaiian Electric’s combustion turbine peaking units consume diesel, except for Hawaiian Electric's Campbell Industrial Park generating facility which operates exclusively on B99 grade biodiesel.
Hawaii Electric Light’s and Maui Electric’s steam generating units burn industrial fuel oil (IFO) and Hawaii Electric Light’s and Maui Electric’s Maui combustion turbine generating units burn diesel. Hawaii Electric Light’s and Maui Electric’s Maui, Molokai, and Lanai diesel engine generating units burn ultra-low-sulfur diesel. All of the fuel purchased for the Utilities(except for fuel purchased for Lanai) is purchased under the new fuel supply contracts with Island Energy Services, LLC (previously with Chevron Products Company), which began on January 1, 2017 and will terminate at the end of 2019.
See the fuel oil commitments information set forth in the “Fuel contracts” section in Note 3 of the Consolidated Financial Statements.
The following table sets forth the average cost of fuel oil used by Hawaiian Electric, Hawaii Electric Light and Maui Electric to generate electricity in 2017, 2016 and 2015:
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Consolidated
 
$/Barrel
 
¢/MBtu
 
$/Barrel
 
¢/MBtu
 
$/Barrel
 
¢/MBtu
 
$/Barrel
 
¢/MBtu
2017
67.96

 
1,087.1

 
68.02

 
1,125.2

 
72.29

 
1,214.6

 
68.78

 
1,114.3

2016
51.30

 
815.2

 
53.27

 
876.9

 
62.21

 
1,048.6

 
53.49

 
862.3

2015
71.86

 
1,144.8

 
79.03

 
1,307.3

 
84.38

 
1,425.7

 
74.71

 
1,206.5

The average per-unit cost of fuel oil consumed to generate electricity for Hawaiian Electric, Hawaii Electric Light and Maui Electric reflects a different volume mix of fuel types and grades as follows:
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
% LSFO

 
% Biodiesel/Diesel

 
% IFO

 
% Diesel

 
% IFO

 
% Diesel

2017
95

 
5

 
43

 
57

 
23

 
77

2016
97

 
3

 
49

 
51

 
19

 
81

2015
96

 
4

 
43

 
57

 
16

 
84

In December 2000, Hawaii Electric Light and Maui Electric executed contracts of private carriage with Hawaiian Interisland Towing, Inc. for the employment of a double-hull tank barge for the shipment of industrial fuel oil (IFO) and diesel supplies from their fuel suppliers’ facilities on Oahu to storage locations on the islands of Hawaii and Maui, respectively, commencing January 1, 2002. The contracts have been extended through December 31, 2021. In July 2011, the carriage contracts were assigned to Kirby Corporation (Kirby), which provides refined petroleum and other products for marine transportation, distribution and logistics services in the U.S. domestic marine transportation industry.
Kirby never takes title to the fuel oil or diesel fuel, but does have custody and control while the fuel is in transit from Oahu. If there were an oil spill in transit, Kirby is generally contractually obligated to indemnify Hawaii Electric Light and/or Maui Electric for resulting clean-up costs, fines and damages. Kirby maintains liability insurance coverage for an amount in excess of $1 billion for oil spill related damage. State law provides a cap of $700 million on liability for releases of heavy fuel oil transported interisland by tank barge. In the event of a release, Hawaii Electric Light and/or Maui Electric may be responsible for any clean-up, damages, and/or fines that Kirby and its insurance carrier do not cover.
The prices that Hawaiian Electric, Hawaii Electric Light and Maui Electric pay for purchased energy from certain older nonutility generators are generally linked to the price of oil. The AES Hawaii energy prices vary primarily with an inflation index. The energy prices for Kalaeloa, which purchases LSFO from Par Hawaii Refining, LLC (PAR), vary primarily with the price of Asian crude oil. A portion of PGV energy prices are based on the electric utilities’ respective short-run avoided energy

8



cost rates (which vary with their composite fuel costs), subject to minimum floor rates specified in their approved PPA. Hamakua Energy energy prices vary primarily with the cost of naphtha.
The Utilities estimate that the net energy they generate or purchase based on fossil fuel oil in 2018 will be comparable to 68% in 2017. Hawaiian Electric generally maintains an average system fuel inventory level equivalent to 47 days of forward consumption. Hawaii Electric Light and Maui Electric generally maintain an average system fuel inventory level equivalent to approximately one month’s supply of both MSFO and diesel. The PPAs with AES Hawaii and Hamakua Energy require that they maintain certain minimum fuel inventory levels.
Rates.  Hawaiian Electric, Hawaii Electric Light and Maui Electric are subject to the regulatory jurisdiction of the PUC with respect to rates, issuance of securities, accounting and certain other matters. See “Regulation” below.
General rate increases require the prior approval of the PUC after public and contested case hearings. Rates for Hawaiian Electric and its subsidiaries include ECACs and PPACs. Under current law and practices, specific and separate PUC approval is not required for each rate change pursuant to automatic rate adjustment clauses previously approved by the PUC. PURPA requires the PUC to periodically review the ECACs of electric and gas utilities in the state, and such clauses, as well as the rates charged by the utilities generally, are subject to change. PUC approval is also required for all surcharges and adjustments before they are reflected in rates.
See “Electric utility–Most recent rate proceedings,” “Electric utility–Certain factors that may affect future results and financial condition–Regulation of electric utility rates” and “Electric utility–Material estimates and critical accounting policies–Revenues” in HEI’s MD&A and “Interim increases” and “Utility projects” under “Commitments and contingencies” in Note 3 of the Consolidated Financial Statements.
Public Utilities Commission and Division of Consumer Advocacy of the Department of Commerce and Consumer Affairs of the State of Hawaii.  Randall Y. Iwase is the Chair of the PUC (for a term that will expire in June 2020) and was formerly a state legislator, Honolulu city council member, supervising deputy attorney general, and Chair of the Hawaii State Tax Review Commission. The other commissioners are Lorraine H. Akiba (for a term that will expire in June 2018), who previously was an attorney in private practice who earlier served as the Director of the State Department of Labor and Industrial Relations, and James Griffin (for a term that will expire in June 2022), who was previously a faculty member at the Hawaii Natural Energy Institute before serving as the PUC's Chief of Policy and Research.
The Division of Consumer Advocacy is led by its Executive Director, Dean Nishina, who most recently served as the division's Public Utilities Administrator.
Competition.  See “Electric utility–Certain factors that may affect future results and financial condition–Competition” in HEI’s MD&A.
Electric and magnetic fields.  The generation, transmission and use of electricity produces low-frequency (50Hz-60Hz) electrical and magnetic fields (EMF). While EMF has been classified as a possible human carcinogen by more than one public health organization and remains the subject of ongoing studies and evaluations, no definite causal relationship between EMF and health risks has been clearly demonstrated to date and there are no federal standards in the U.S. limiting occupational or residential exposure to 50Hz-60Hz EMF. The Utilities are continuing to monitor the ongoing research and continue to participate in utility industry funded studies on EMF and, where technically feasible and economically reasonable, continue to pursue a policy of prudent avoidance in the design and installation of new transmission and distribution facilities. Management cannot predict the impact, if any, the EMF issue may have on the Utilities in the future.
Global climate change and greenhouse gas (GHG) emissions reduction.  The Utilities share the concerns of many regarding the potential effects of global climate changes and the human contributions to this phenomenon, including burning of fossil fuels for electricity production, transportation, manufacturing and agricultural activities, as well as deforestation. Recognizing that effectively addressing global climate changes requires commitment by the private sector, all levels of government, and the public, the Utilities are committed to taking direct action to mitigate GHG emissions from its operations. See “Electric utility risk–Global climate change and greenhouse gas emissions reduction” under “Item 1A. Risk factors.”
Legislation.  See “Electric utility–Legislation and regulation” in HEI’s MD&A.
Commitments and contingencies.  See “Selected contractual obligations and commitments” in Hawaiian Electric’s MD&A and “Electric utility–Certain factors that may affect future results and financial condition–Other regulatory and permitting contingencies” in HEI’s MD&A, Item 1A. Risk Factors, and Note 3 of the Consolidated Financial Statements for a discussion of important commitments and contingencies.
Regulation.  The PUC regulates the rates, issuance of securities, accounting and certain other aspects of the operations of Hawaiian Electric and its electric utility subsidiaries. See the previous discussion under “Rates” and the discussions under

9



“Electric utility–Results of operations–Most recent rate proceedings” and “Electric utility–Certain factors that may affect future results and financial condition–Regulation of electric utility rates” in HEI’s MD&A.
Any adverse decision or policy made or adopted by the PUC, or any prolonged delay in rendering a decision, could have a material adverse effect on consolidated Hawaiian Electric’s and the Company’s results of operations, financial condition or liquidity.
On September 15, 2014, the State of Hawaii and the U.S. Department of Energy executed a MOU recognizing that Hawaii is embarking on the next phase of its clean energy future. See "State of Hawaii and U.S. Department of Energy MOU" above.
In 2015, Hawaii’s RPS law was amended to require electric utilities to meet an RPS of 15%, 30%, 40%, 70% and 100% by December 31, 2015, 2020, 2030, 2040 and 2045 respectively. Energy savings resulting from energy efficiency programs do not count toward the RPS since 2014 (only electrical generation using renewable energy as a source counts).
Certain transactions between HEI’s electric public utility subsidiaries (Hawaiian Electric, Hawaii Electric Light and Maui Electric) and HEI and affiliated interests (as defined by statute) are subject to regulation by the PUC. All contracts of $300,000 or more in a calendar year for management, supervisory, construction, engineering, accounting, legal, financial and similar services and for the sale, lease or transfer of property between a public utility and affiliated interests must be filed with the PUC to be effective, and the PUC may issue cease and desist orders if such contracts are not filed. All such “affiliated contracts” for capital expenditures (except for real property) must be accompanied by comparative price quotations from two nonaffiliates, unless the quotations cannot be obtained without substantial expense. Moreover, all transfers of $300,000 or more of real property between a public utility and affiliated interests require the prior approval of the PUC and proof that the transfer is in the best interest of the public utility and its customers. If the PUC, in its discretion, determines that an affiliated contract is unreasonable or otherwise contrary to the public interest, the utility must either revise the contract or risk disallowance of payments under the contract for rate-making purposes. In rate-making proceedings, a utility must also prove the reasonableness of payments made to affiliated interests under any affiliated contract of $300,000 or more by clear and convincing evidence.
In December 1996, the PUC issued an order in a docket that had been opened to review the relationship between HEI and Hawaiian Electric and the effects of that relationship on the operations of Hawaiian Electric. The order adopted the report of the consultant the PUC had retained and ordered Hawaiian Electric to continue to provide the PUC with periodic status reports on its compliance with the PUC Agreement (pursuant to which HEI became the holding company of Hawaiian Electric). Hawaiian Electric files such status reports annually. In the order, the PUC also required the Utilities to present a comprehensive analysis of the impact that the holding company structure and investments in nonutility subsidiaries have on a case-by-case basis on the cost of capital to each utility in future rate cases and remove any such effects from the cost of capital. The Utilities have made presentations in their subsequent rate cases to support their positions that there was no evidence that would modify the PUC’s finding that Hawaiian Electric’s access to capital did not suffer as a result of HEI’s involvement in nonutility activities and that HEI’s diversification did not permanently raise or lower the cost of capital incorporated into the rates paid by Hawaiian Electric’s utility customers.
The Utilities are not subject to regulation by the FERC under the Federal Power Act, except under Sections 210 through 212 (added by Title II of PURPA and amended by the Energy Policy Act of 1992), which permit the FERC to order electric utilities to interconnect with qualifying cogenerators and small power producers, and to wheel power to other electric utilities. Title I of PURPA, which relates to retail regulatory policies for electric utilities, and Title VII of the Energy Policy Act of 1992, which addresses transmission access, also apply to the Utilities. The Utilities are also required to file various operational reports with the FERC.
Because they are located in the State of Hawaii, Hawaiian Electric and its subsidiaries are exempt by statute from limitations set forth in the Powerplant and Industrial Fuel Use Act of 1978 on the use of petroleum as a primary energy source.
See also “HEI–Regulation” above.
Environmental regulation.  Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, are subject to periodic inspections by federal, state and, in some cases, local environmental regulatory agencies, including agencies responsible for the regulation of water quality, air quality, hazardous and other waste and hazardous materials. These inspections may result in the identification of items needing corrective or other action. Except as otherwise disclosed in this report (see “Certain factors that may affect future results and financial condition–Environmental matters” for HEI Consolidated, the Electric utility and the Bank sections in HEI’s MD&A and Note 3 of the Consolidated Financial Statements, which are incorporated herein by reference), the Company believes that each subsidiary has appropriately responded to environmental conditions requiring action and that, as a result of such actions, such environmental conditions will not have a material adverse effect on the Company or Hawaiian Electric.

10



Water quality controls.  The generating stations, substations and other utility facilities operate under federal and state water quality regulations and permits, including but not limited to the Clean Water Act National Pollution Discharge Elimination System (governing point source discharges, including wastewater and storm water discharges) and the Safe Drinking Water Act Underground Injection Control (regulating disposal of wastewater into the subsurface). On February 1, 2018, the Ninth Circuit Court of Appeals ruled that under certain circumstances, discharges from underground injection control wells may require National Pollution Discharge Elimination System permits. The Utilities are evaluating the impact of this decision on their facilities.
Oil pollution controls.  The Oil Pollution Act of 1990 (OPA) establishes programs that governing actual or threatened oil releases and imposing strict liability on responsible parties for clean-up costs and damages to natural resources and property. The federal Environmental Protection Agency (EPA) regulations under OPA require certain facilities that use or store oil to prepare and implement Spill Prevention, Control and Countermeasures (SPCC) Plans in order to prevent releases of oil to navigable waters of the U.S. Certain facilities are also required to prepare and implement Facility Response Plans (FRPs) to ensure prompt and proper response to releases of oil. The utility facilities that are subject to SPCC Plan and FRP requirements have prepared and implemented SPCC Plans and FRPs.
Air quality controls.  The Clean Air Act (CAA) establishes permitting programs to reduce air pollution. The CAA amendments of 1990, established the federal Title V Operating Permit Program (in Hawaii known as the Covered Source Permit program) to ensure compliance with all applicable federal and state air pollution control requirements. The 1977 CAA Amendments established the New Source Review (NSR) permitting program which affect new or modified generating units by requiring a permit to construct under the CAA and the controls necessary to meet the National Ambient Air Quality Standards (NAAQS).
Title V operating permits have been issued for all of the Utilities’ affected generating units.
Hazardous waste and toxic substances controls.  The operations of the electric utility are subject to EPA regulations that implement provisions of the Resource Conservation and Recovery Act (RCRA), the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, also known as Superfund), the Superfund Amendments and Reauthorization Act (SARA), and the Toxic Substances Control Act (TSCA).
RCRA underground storage tank (UST) regulations require all facilities that use USTs for storing petroleum products to comply with established leak detection, spill prevention, standards for tank design and retrofits, financial assurance, operator training, and tank decommissioning and closure requirements. All of the Utilities’ USTs currently meet the applicable requirements.
The Emergency Planning and Community Right-to-Know Act under SARA Title III requires the Utilities to report potentially hazardous chemicals present in their facilities in order to provide the public with information so that emergency procedures can be established to protect the public in the event of hazardous chemical releases. Since January 1, 1998, the steam electric industry category has been subject to Toxics Release Inventory (TRI) reporting requirements.
The TSCA regulations specify procedures for the handling and disposal of polychlorinated biphenyls (PCBs), a compound found in some transformer and capacitor dielectric fluids. The TSCA regulations also apply to responses to releases of PCBs to the environment. The Utilities have instituted procedures to monitor compliance with these regulations and have implemented a program to identify and replace PCB transformers and capacitors in their systems. In April 2010, the EPA issued an Advance Notice of Proposed Rule Making announcing its intent to reassess PCB regulations. The EPA has ceased activity on the PCB reassessment.
Hawaii’s Environmental Response Law (ERL), as amended, governs releases of hazardous substances, including oil, to the environment in areas within the state’s jurisdiction. Responsible parties under the ERL are jointly, severally, and strictly liable for a release of a hazardous substance. Responsible parties include owners or operators of a facility where a hazardous substance is located and any person who at the time of disposal of the hazardous substance owned or operated any facility at which such hazardous substance was disposed.
The Utilities periodically discover leaking oil-containing equipment such as USTs, piping, and transformers. Each subsidiary reports releases from such equipment when and as required by applicable law and addresses the releases in compliance with applicable regulatory requirements.
Research and development.  The Utilities expensed approximately $3.8 million, $4.2 million and $3.3 million in 2017, 2016 and 2015, respectively, for research and development (R&D). In 2017, 2016 and 2015, the electric utilities’ contributions to the Electric Power Research Institute (EPRI) accounted for approximately 58%, 52% and 67% of R&D expenses, respectively. The Utilities continue to collaborate with EPRI, Elemental Excelerator, other utilities, national testing labs, leading edge companies and various stakeholders to identify and evaluate what new technologies and solutions are being developed, tested, and

11



implemented elsewhere and can be applied to integrate more renewable distributed energy resources onto the utility grid, modernizing grid infrastructure, and helping the State achieve a 100% clean energy future. The Utilities utilize an expanded reference of R&D to highlight the demonstration of technologies. Included in the R&D expenses were amounts related to evaluating, testing, and demonstrating new and emerging technologies, energy storage, demand response, environmental compliance, power quality, electric and hybrid plug in vehicles and other renewables (e.g., integration of distributed energy resources onto the utility grid, grid modernization, solar resource evaluation, advanced inverter testing, and modeling of high PV penetration circuits).
Additional information.  For additional information about Hawaiian Electric, see Hawaiian Electric’s MD&A, Hawaiian Electric’s “Quantitative and Qualitative Disclosures about Market Risk” and Hawaiian Electric’s Consolidated Financial Statements, including the Notes thereto.
Properties. Hawaiian Electric owns four generating plants on the island of Oahu at Waiau, Kahe, Campbell Industrial Park (CIP) and Honolulu. Hawaiian Electric currently operates three of the four generation plants; the fourth, in downtown Honolulu, was deactivated in 2014. These three plants have an aggregate net generating capability of 1,214 MW as of December 31, 2017. The City and County of Honolulu is seeking to condemn a portion of the Honolulu plant site for its rail project. The four plants are situated on Hawaiian Electric-owned land having a combined area of 542 acres and three parcels of land totaling 5.7 acres under leases expiring between December 31, 2018 and June 30, 2021, with options to extend to June 30, 2026. Additionally, Hawaiian Electric has negotiated two leases: 1) a 35 year lease, effective September 1, 2016 with an option to extend an additional 10 years with the Department of the Army to install, operate, and maintain a 50 MW power generation plant on 8.13 acres, and 2) a 37 year lease, effective July 1, 2017 with the Secretary of the Navy to install, operate and maintain a 28 MW (dc) renewable generation site on 102 acres. In addition, Hawaiian Electric owns a total of 132 acres of land on which substations, transformer vaults, distribution baseyards and the Kalaeloa cogeneration facility are located.
Hawaiian Electric owns buildings and approximately 11.6 acres of land located in Honolulu which house its operating and engineering departments. It also leases an office building and certain office spaces in Honolulu, and a warehousing center in Kapolei. The lease for the office building expires in November 2021, with an option to extend through November 2024. Leases for certain office and warehouse spaces expire on various dates from March 31, 2018 through July 31, 2025, some with options to extend to various dates through December 31, 2034.
Hawaiian Electric's Barbers Point Tank Farm (BPTF) has three storage tanks with an aggregate of 1 million barrels of storage for low sulfur fuel oil (LSFO). The BPTF is located in Campbell Industrial Park, on the same property as the CIP Generating Station, and is the central fuel storage facility where LSFO purchased by Hawaiian Electric is received and stored. From the BPTF, LSFO is transported via Hawaiian Electric owned underground pipelines to the Kahe and Waiau Power Plants. Hawaiian Electric also has fuel storage facilities at each of its plant sites with a nominal aggregate capacity of 770,000 barrels for LSFO storage, 44,000 barrels for diesel storage and 88,000 barrels for biodiesel storage. Hawaiian Electric also owns a fuel storage facility at Iwilei that was used to provide fuel to the Honolulu Power Plant. The Honolulu Power Plant was deactivated on January 31, 2014 and any future fuel supplies will be delivered directly to the plant by truck. The removal of the Iwilei fuel storage facility's tanks and pumping infrastructure was completed in 2017, and the facility is being reconfigured for other purposes.
Hawaii Electric Light owns and operates four generating plants on the island of Hawaii in Hilo, Waimea, Keahole and Puna, along with distributed generators at substation sites. These plants have an aggregate net generating capability of 182 MW as of December 31, 2017 (excluding several small run-of-river hydro units). Hawaii Electric Light's Shipman plant in Hilo was deactivated in 2014 and retired in 2015. The plants (including a baseyard on the same parcel as the Hilo plant) are situated on Hawaii Electric Light-owned land having a combined area of approximately 44 acres. The distributed generators are located within Hawaii Electric Light-owned substation sites having a combined area of approximately 4 acres. Hawaii Electric Light also owns fuel storage facilities at these sites with a usable storage capacity of 48,000 barrels of medium sulfur fuel oil (MSFO) and 81,802 barrels of diesel. There are an additional 19,200 barrels of diesel and 22,770 barrels of MSFO storage capacity for Hawaii Electric Light-owned fuel off-site at Island Energy Services, LLC (Island Energy)-owned terminalling facilities (previously Chevron-owned). Hawaii Electric Light pays a storage fee to Island Energy and has no other interest in the property, tanks or other infrastructure situated on their property. Hawaii Electric Light also owns 6 acres of land in Kona, which is used for a baseyard, and one acre of land in Hilo, which houses its accounting, customer services and administrative offices. Hawaii Electric Light also leases 3.7 acres of land for its baseyard in Hilo under a lease expiring in 2030. In addition, Hawaii Electric Light owns a total of approximately 100 acres of land, and leases a total of approximately 8.5 acres of land, on which hydro facilities, substations and switching stations, microwave facilities and transmission lines are located. The deeds to the sites located in Hilo contain certain restrictions, but the restrictions do not materially interfere with the use of the sites for public utility purposes.
On 37.7 acres of its land, Maui Electric: (1) owns and operates two generating plants on the island of Maui, at Kahului and Maalaea, with an aggregate net generating capability of 246 MW as of December 31, 2017, (2) has offices (administrative,

12



engineering and distribution departments) in Kahului and (3) owns fuel oil storage facilities with a total maximum usable capacity of 81,272 barrels of MSFO and 94,586 barrels of diesel. There are an additional 56,358 barrels of diesel oil storage capacity off-site at Aloha Petroleum, Ltd. (Aloha Petroleum)-owned terminalling facilities, for which Maui Electric pays storage fees. Maui Electric also owns two, 1 MW stand-by diesel generators and a 6,000 gallon fuel storage tank in Hana and 65.7 acres of undeveloped land at Waena.
Maui Electric also owns and operates smaller distribution systems, generation systems (with an aggregate net capability of 22 MW as of December 31, 2017) and fuel storage facilities on the islands of Lanai and Molokai, primarily on its own land.
Other properties.  The Utilities own overhead transmission and distribution lines, underground cables, poles (some jointly) and metal high voltage towers. Electric lines are located over or under public and nonpublic properties. Lines are added when needed to serve increased loads and/or for reliability reasons. In some design districts on Oahu, lines must be placed underground. Under Hawaii law, the PUC generally must determine whether new 46 kilovolt (kV), 69 kV or 138 kV lines can be constructed overhead or must be placed underground.
See “Hawaiian Electric and subsidiaries and service areas” above for a discussion of the nonexclusive franchises of Hawaiian Electric and subsidiaries. Most of the leases, easements and licenses for Hawaiian Electric’s, Hawaii Electric Light’s and Maui Electric’s lines have been recorded.
See “Generation statistics” above and “Limited insurance” in HEI’s MD&A for a further discussion of some of the electric utility properties.
Bank
General.  ASB was granted a federal savings bank charter in January 1987. Prior to that time, ASB had operated since 1925 as the Hawaii division of American Savings & Loan Association of Salt Lake City, Utah. As of December 31, 2017, ASB was one of the largest financial institutions in the State of Hawaii based on total assets of $6.8 billion and deposits of $5.9 billion. In 2017, ASB’s revenues and net income amounted to approximately 12% and 41% of HEI’s consolidated revenues and net income, respectively, compared to approximately 12% and 23% (impacted by the merger termination fee and other impacts at HEI corporate) in 2016 and approximately 10% and 34% in 2015, respectively.
At the time of HEI’s acquisition of ASB in 1988, HEI agreed with the OTS’ predecessor regulatory agency that ASB’s regulatory capital would be maintained at a level of at least 6% of ASB’s total liabilities, or at such greater amount as may be required from time to time by regulation. Under the agreement, HEI’s obligation to contribute additional capital to ensure that ASB would have the capital level required by the OTS was limited to a maximum aggregate amount of approximately $65.1 million. As of December 31, 2017, as a result of certain HEI contributions of capital to ASB, HEI’s maximum obligation under the agreement to contribute additional capital has been reduced to approximately $28.3 million. ASB is subject to OCC regulations on dividends and other distributions and ASB must receive a letter from the FRB communicating the OCC's and FRB's non-objection to the payment of any dividend ASB proposes to declare and pay to ASB Hawaii and HEI.
The following table sets forth selected data for ASB (average balances calculated using the average daily balances):
Years ended December 31
2017

 
2016

 
2015

Common equity to assets ratio
 

 
 

 
 

Average common equity divided by average total assets
9.10
%
 
9.34
%
 
9.53
%
Return on assets
 
 
 
 
 
Net income divided by average total assets
1.02

 
0.92

 
0.95

Return on common equity
 
 
 
 
 
Net income divided by average common equity
11.20

 
9.90

 
9.93

Asset/liability management.  See HEI’s “Quantitative and Qualitative Disclosures about Market Risk.”
Consolidated average balance sheet and interest income and interest expense.  See “Bank—Results of operations—Average balance sheet and net interest margin” in HEI’s MD&A.
The following table shows the effect on net interest income of (1) changes in interest rates (change in weighted-average interest rate multiplied by prior year average balance) and (2) changes in volume (change in average balance multiplied by prior period weighted-average interest rate). Any remaining change is allocated to the above two categories on a prorata basis.

13



 
2017 vs. 2016
 
2016 vs. 2015
(in thousands)
Rate
 
Volume
 
Total
 
Rate
 
Volume
 
Total
Interest income
 

 
 

 
 

 
 

 
 

 
 

Interest-earning deposits
$
488

 
$
27

 
$
515

 
$
228

 
$
(169
)
 
$
59

FHLB stock
24

 
(7
)
 
17

 
192

 
(148
)
 
44

Investment securities
 
 
 
 
 
 
 
 
 
 
 
Taxable
1,691

 
7,008

 
8,699

 
(1,018
)
 
4,961

 
3,943

Non-taxable
3

 
624

 
627

 
14

 
14

 
28

Total investment securities
1,694

 
7,632

 
9,326

 
(1,004
)
 
4,975

 
3,971

Loans
 
 
 
 
 

 
 
 
 
 
 

Residential 1-4 family
(1,488
)
 
148

 
(1,340
)
 
(2,103
)
 
444

 
(1,659
)
Commercial real estate
1,234

 
632

 
1,866

 
1,037

 
8,345

 
9,382

Home equity line of credit
781

 
971

 
1,752

 
686

 
1,052

 
1,738

Residential land
13

 
(120
)
 
(107
)
 
(77
)
 
94

 
17

Commercial
2,395

 
(4,733
)
 
(2,338
)
 
2,538

 
(2,077
)
 
461

Consumer
1,134

 
6,514

 
7,648

 
1,908

 
3,145

 
5,053

Total loans
4,069

 
3,412

 
7,481

 
3,989

 
11,003

 
14,992

Total increase in interest income
6,275

 
11,064

 
17,339

 
3,405

 
15,661

 
19,066

Interest expense
 

 
 

 
 

 
 

 
 

 
 

Savings

 
(165
)
 
(165
)
 
(103
)
 
(42
)
 
(145
)
Interest-bearing checking
(56
)
 
(9
)
 
(65
)
 

 
(34
)
 
(34
)
Money market
13

 
21

 
34

 
(5
)
 
8

 
3

Time certificates
(928
)
 
(1,369
)
 
(2,297
)
 
(589
)
 
(1,054
)
 
(1,643
)
Advances from Federal Home Loan Bank
267

 
648

 
915

 
21

 
(35
)
 
(14
)
Securities sold under agreements to repurchase
1,433

 
744

 
2,177

 
(285
)
 
689

 
404

Total decrease (increase) in interest expense
729

 
(130
)
 
599

 
(961
)
 
(468
)
 
(1,429
)
Increase in net interest income
$
7,004

 
$
10,934

 
$
17,938

 
$
2,444

 
$
15,193

 
$
17,637

See “Bank—Results of operations” in HEI’s MD&A for an explanation of significant changes in earning assets and costing liabilities.
Noninterest income.  In addition to net interest income, ASB has various sources of noninterest income, including fee income from credit and debit cards, fee income from deposit liabilities, mortgage banking income and other financial products and services. See “Bank—Results of operations” in HEI’s MD&A for an explanation of significant changes in noninterest income.

14



Lending activities.
General The following table sets forth the composition of ASB’s loans receivable held for investment:
December 31
2017
 
2016
 
2015
 
2014
 
2013
(dollars in thousands)
Balance
 
% of
total

 
Balance
 
% of
total

 
Balance
 
% of
total

 
Balance
 
% of
total

 
Balance
 
% of
total

Real estate: 1 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
$
2,118,047

 
45.3

 
$
2,048,051

 
43.2

 
$
2,069,665

 
44.8

 
$
2,044,205

 
46.0

 
$
2,006,007

 
48.2

Commercial real estate
733,106

 
15.7

 
800,395

 
16.9

 
690,561

 
14.9

 
531,917

 
12.0

 
440,443

 
10.6

Home equity line of credit
913,052

 
19.6

 
863,163

 
18.2

 
846,294

 
18.3

 
818,815

 
18.4

 
739,331

 
17.8

Residential land
15,797

 
0.3

 
18,889

 
0.4

 
18,229

 
0.4

 
16,240

 
0.4

 
16,176

 
0.4

Commercial construction
108,273

 
2.3

 
126,768

 
2.7

 
100,796

 
2.2

 
96,438

 
2.2

 
52,112

 
1.3

Residential construction
14,910

 
0.3

 
16,080

 
0.3

 
14,089

 
0.3

 
18,961

 
0.4

 
12,774

 
0.3

Total real estate
3,903,185

 
83.5


3,873,346

 
81.7

 
3,739,634

 
80.9

 
3,526,576

 
79.4

 
3,266,843

 
78.6

Commercial
544,828

 
11.7

 
692,051

 
14.6

 
758,659

 
16.4

 
791,757

 
17.8

 
783,388

 
18.8

Consumer
223,564

 
4.8

 
178,222

 
3.7

 
123,775

 
2.7

 
122,656

 
2.8

 
108,722

 
2.6

Total loans
4,671,577

 
100.0

 
4,743,619

 
100.0

 
4,622,068

 
100.0

 
4,440,989

 
100.0

 
4,158,953

 
100.0

Less: Deferred fees and discounts
(809
)
 
 

 
(4,926
)
 
 

 
(6,249
)
 
 

 
(6,338
)
 
 

 
(8,724
)
 
 

Allowance for loan losses
(53,637
)
 
 

 
(55,533
)
 
 

 
(50,038
)
 
 

 
(45,618
)
 
 

 
(40,116
)
 
 

Total loans, net
$
4,617,131

 
 

 
$
4,683,160

 
 

 
$
4,565,781

 
 

 
$
4,389,033

 
 

 
$
4,110,113

 
 

1 
Includes renegotiated loans.
The decrease in the loans receivable balance in 2017 was primarily due to decreases in the commercial, commercial real estate, and commercial construction loan portfolios, partly offset by growth in the residential 1-4 family, home equity lines of credit (HELOC), and consumer loan portfolios. The decrease in the commercial loan portfolio was primarily due to the strategic reductions in the portfolio, including a $75 million reduction in ASB's nationally syndicated loan portfolio. The decrease in the commercial real estate loan portfolio was primarily due to paydown of a large commercial real estate credit. The growth in the residential 1-4 family, HELOC and consumer loan portfolios were consistent with ASB's loan growth strategy.
The increase in the loans receivable balance in 2016 was primarily due to growth in the commercial real estate, consumer, commercial construction and HELOC loan portfolios as a result of demand for these loan types, partly offset by a decrease in the commercial and residential 1-4 family loan portfolios. The growth in the commercial real estate, consumer, commercial construction and HELOC loan portfolios was consistent with ASB's loan growth strategy. The decrease in the commercial loan portfolio was due to the strategic reduction of ASB's nationally syndicated loan portfolio by $93 million. The decrease in the residential loan portfolio was due to ASB's decision to sell a portion of its loan production with low interest rates to control its interest rate risk.
The increase in the loans receivable balance in 2015 was primarily due to growth in commercial real estate, HELOC and residential 1-4 family loan portfolios, partly offset by a decrease in the commercial loan portfolio. The growth in the commercial real estate, HELOC and residential loan portfolios was driven by demand for this loan type and was consistent with ASB's loan growth strategy.
The increase in the loans receivable balance in 2014 was primarily due to growth in commercial real estate, HELOC, commercial construction and residential 1-4 family loan portfolios. The growth in the commercial real estate and commercial construction loan portfolios were driven by demand for these loan types as the Hawaii economy continues to improve. The growth in the HELOC and residential loan portfolios were consistent with ASB’s mix target and loan growth strategy.

15



The following table summarizes loans receivable held for investment based upon contractually scheduled principal payments allocated to the indicated maturity categories:
December 31
2017
Due
In
1 year
or less

 
After 1 year
through
5 years

 
After
5 years

 
Total

(in millions)
 

 
 

 
 

 
 

Commercial – Fixed
$
53

 
$
121

 
$
18

 
$
192

Commercial – Adjustable
153

 
172

 
28

 
353

Total commercial
206

 
293

 
46

 
545

Commercial construction – Fixed

 

 

 

Commercial construction – Adjustable
59

 
22

 
27

 
108

Total commercial construction
59

 
22

 
27

 
108

Residential construction – Fixed
15

 

 

 
15

Residential construction – Adjustable

 

 

 

Total residential construction
15

 

 

 
15

Total loans – Fixed
68

 
121

 
18

 
207

Total loans – Adjustable
212

 
194

 
55

 
461

Total loans
$
280

 
$
315

 
$
73

 
$
668

Origination, purchase and sale of loans Generally, residential and commercial real estate loans originated by ASB are collateralized by real estate located in Hawaii. For additional information, including information concerning the geographic distribution of ASB’s mortgage-related securities portfolio and the geographic concentration of credit risk, see Note 13 to the Consolidated Financial Statements. The demand for loans is primarily dependent on the Hawaii real estate market, business conditions, interest rates and loan refinancing activity.
Residential mortgage lending ASB originates fixed rate and adjustable rate loans secured by single family residential property, including investor-owned properties, with maturities of up to 30 years. ASB’s general policy is to require private mortgage insurance 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.
Construction and development lending ASB provides fixed rate loans for the construction of one-to-four unit residential and commercial properties. Construction loan projects are typically short term in nature. Construction and development financing generally involves a higher degree of credit risk than long-term financing on improved, occupied real estate. Accordingly, construction and development loans are generally priced higher than loans collateralized by completed structures. ASB’s underwriting, monitoring and disbursement practices with respect to construction and development financing are designed to ensure sufficient funds are available to complete construction projects. See “Loan portfolio risk elements” and “Multifamily residential and commercial real estate lending” below.
Multifamily residential and commercial real estate lending ASB provides permanent financing and construction and development financing collateralized by multifamily residential properties (including apartment buildings) and collateralized by commercial and industrial properties (including office buildings, shopping centers and warehouses) for its own portfolio as well as for participation with other lenders. Commercial real estate lending typically involves long lead times to originate and fund. As a result, production results can vary significantly from period to period.
Consumer lending ASB offers a variety of secured and unsecured consumer loans. Loans collateralized by deposits are limited to 90% of the available account balance. ASB offers home equity lines of credit, clean energy loans, secured and unsecured VISA cards (through a third party issuer), checking account overdraft protection and other general purpose consumer loans.
Commercial lending ASB provides both secured and unsecured commercial loans to business entities. This lending activity is designed to diversify ASB’s asset structure, shorten maturities, improve rate sensitivity of the loan portfolio and attract commercial checking deposits. ASB offers commercial loans with terms up to ten years.
Loan origination fee and servicing income In addition to interest earned on residential mortgage loans, ASB receives income from servicing loans, for late payments and from other related services. Servicing fees are received on loans originated and subsequently sold by ASB where ASB acts as collection agent on behalf of third-party purchasers.

16



ASB charges the borrower at loan settlement a loan origination fee. See “Loans receivable” in Note 1 of the Consolidated Financial Statements.
Loan portfolio risk elements When a borrower fails to make a required payment on a loan and does not cure the delinquency promptly, the loan is classified as delinquent. If delinquencies are not cured promptly, ASB normally commences a collection action, including foreclosure proceedings in the case of real estate secured loans. In a foreclosure action, the property collateralizing the delinquent debt is sold at a public auction in which ASB may participate as a bidder to protect its interest. If ASB is the successful bidder, the property is classified as real estate owned until it is sold. As of December 31, 2017, 2016 and 2015, ASB had $0.1 million, $1.2 million and $1.0 million, respectively, of real estate acquired in settlement of loans.
In addition to delinquent loans, other significant lending risk elements include: (1) loans which accrue interest and are 90 days or more past due as to principal or interest, (2) loans accounted for on a nonaccrual basis (nonaccrual loans), and (3) loans on which various concessions are made with respect to interest rate, maturity, or other terms due to the inability of the borrower to service the obligation under the original terms of the agreement (troubled debt restructured loans). ASB loans that were 90 days or more past due on which interest was being accrued as of December 31, 2017, 2016, 2015, 2014 and 2013 were immaterial or nil. The following table sets forth certain information with respect to nonaccrual and troubled debt restructured loans:
December 31
2017

 
2016

 
2015

 
2014

 
2013

(dollars in thousands)
 

 
 

 
 

 
 

 
 

Nonaccrual loans—
 

 
 

 
 

 
 

 
 

Real estate:
 

 
 

 
 

 
 

 
 

Residential 1-4 family
$
12,598

 
$
11,154

 
$
20,554

 
$
19,253

 
$
19,679

Commercial real estate

 
223

 
1,188

 
5,112

 
4,439

Home equity line of credit
4,466

 
3,080

 
2,254

 
1,087

 
2,060

Residential land
841

 
878

 
970

 
720

 
3,161

Commercial construction

 

 

 

 

Residential construction

 

 

 

 

Total real estate
17,905

 
15,335

 
24,966

 
26,172

 
29,339

Commercial
3,069

 
6,708

 
20,174

 
10,053

 
18,781

Consumer
2,617

 
1,282

 
895

 
661

 
401

Total nonaccrual loans
$
23,591

 
$
23,325

 
$
46,035

 
$
36,886

 
$
48,521

Troubled debt restructured loans not included above—
 

 
 

 
 

 
 

 
 

Real estate:
 

 
 

 
 

 
 

 
 

Residential 1-4 family
$
10,982

 
$
14,450

 
$
13,962

 
$
13,525

 
$
9,744

Commercial real estate
1,016

 
1,346

 

 

 

Home equity line of credit
6,584

 
4,934

 
2,467

 
480

 
171

Residential land
425

 
2,751

 
4,713

 
7,130

 
7,476

Commercial construction

 

 

 

 

Residential construction

 

 

 

 

Total real estate
19,007

 
23,481

 
21,142

 
21,135

 
17,391

Commercial
1,741

 
14,146

 
1,104

 
2,972

 
1,649

Consumer
66

 
10

 

 

 

Total troubled debt restructured loans
$
20,814

 
$
37,637

 
$
22,246

 
$
24,107

 
$
19,040

In 2017, nonaccrual loans increased slightly by $0.3 million primarily due to higher nonaccrual residential 1-4 family, HELOC and consumer loans of $1.4 million, $1.4 million and $1.3 million, respectively. Nonaccrual commercial loans decreased by $3.6 million. ASB evaluates a restructured loan transaction to determine if the borrower is in financial difficulty and if the restructured terms are considered concessions—typically terms that are out of market, beyond normal or reasonable standards, or otherwise not available to a non-troubled borrower in the normal marketplace. A loan classified as TDR must meet both criteria of financial difficulty and concession. Accruing TDR loans decreased by $16.8 million in 2017 primarily due to decreases of $12.4 million, $3.5 million, and $2.3 million of commercial, residential 1-4 family, and residential land loans, respectively, classified as TDRs.


17




In 2016, nonaccrual loans decreased $22.7 million primarily due to upgrades of specific commercial and commercial real estate loans, payoff of a troubled commercial loan and a segment of residential mortgages transferred to held-for-sale. Nonaccrual commercial and residential loans decreased by $13.5 million and $9.4 million, respectively. Accruing TDR loans increased $15.4 million in 2016 primarily due to increases of $13.0 million and $2.5 million of commercial and HELOC loans, respectively, classified as TDR. The increase in commercial loans classified as TDR was primarily due to two commercial credits being classified as TDR.
In 2015, nonaccrual loans increased $9.1 million primarily due to higher nonaccrual commercial loans of $10.1 million. TDR loans decreased $1.9 million in 2015 primarily due to decreases of $2.4 million and $1.9 million of residential land and commercial loans, respectively, classified as TDR. HELOC loans classified as TDR increased by $2.0 million.
In 2014, nonaccrual loans decreased $11.6 million primarily due to the payoff of commercial loans that were on nonaccrual status and repayments in the residential land portfolio. TDR loans increased $5.1 million in 2014 primarily due to increases of $3.8 million and $1.3 million of residential 1-4 and commercial loans, respectively, classified as TDR.
Impact of nonperforming loans on interest income. The following table presents the gross interest income for both nonaccrual and restructured loans that would have been recognized if such loans had been current in accordance with their original contractual terms, and had been outstanding throughout the period or since origination if held for only part of the period. The table also presents the interest income related to these loans that was actually recognized for the period.
(dollars in millions)
Year ended December 31, 2017
Gross amount of interest income that would have been recorded if the loans had been current in accordance with original contractual terms, and had been outstanding throughout the period or since origination, if held for only part of the period 1
$
2

Interest income actually recognized
1

Total interest income foregone
$
1

1  
Based on the contractual rate that was being charged at the time the loan was restructured or placed on nonaccrual status.
Allowance for loan losses See “Allowance for loan losses” in Note 1 of the Consolidated Financial Statements.

18



The following table presents the changes in the allowance for loan losses:
(dollars in thousands)
2017

 
2016

 
2015

 
2014

 
2013

Allowance for loan losses, January 1
$
55,533

 
$
50,038

 
$
45,618

 
$
40,116

 
$
41,985

Provision for loan losses
10,901

 
16,763

 
6,275

 
6,126

 
1,507

Charge-offs
 
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
826

 
639

 
356

 
987

 
1,162

Commercial real estate

 

 

 

 

Home equity line of credit
14

 
112

 
205

 
196

 
782

Residential land
210

 
138

 

 
81

 
485

Commercial construction