Yahoo  Jun 21  Comment 
When Hawaiian Electric Industries Inc (NYSE:HE) announced its most recent earnings (31 March 2018), I compared it against two factor: its historical earnings track record, and the performance of itsRead More...
Forbes  Nov 17  Comment 
Hershey Company will pay its quarterly dividend of $0.656 on 12/15/17, Marriott International, Inc. will pay its quarterly dividend of $0.33 on 12/29/17, and Hawaiian Electric Industries Inc will pay its quarterly dividend of $0.31 on 12/12/17.


Hawaiian Electric Industries (NYSE:HE) is the primary electric utility in the state of Hawaii. It also operates the third largest commercial bank by assets in the state. HE's electric utilities both generate and transmit power to 95% of Hawaii's population, while its banking unit provides deposit, checking, insurance, and lending services to individuals and businesses in Hawaii and Guam. It's electric utility subsidiaries and contracted partners have a combined generation capacity of 2,223 megawatts (MWH) [1], making it one of the smaller electrical utilities in the United States, but the largest in Hawaii. Its geographical dominance in Hawaii is highlighted by the fact that HE is the only electric public utility for 95% of the state's 1.2 million residents[2]. HE's banking unit, American Savings Bank (ASB), is one of Hawaii's largest financial institutions, with the second-largest branch network in the state.[3]

Between HE's electric utilities and its banking services, the company has tied its fate to the state of Hawaii. Hawaiian Electric Industries (HEI)'s monopoly on Hawaiian electricity customers is an enormous barrier to entry for would-be competitors. This monopoly comes at a price, however; its geographical isolation also means that HE's utilities have to maintain higher generating capacities than similar utilities on the mainland that share excess generating capacity. Although the company has been diversifying away from fossil fuels in recent years, these still account for over 93% of the utilities' generation capacity. As a result, the company's earnings are highly susceptible to the price of the oil and coal it burns[4].

As the only source of electricity to the majority of the state's population, HEI is also heavily regulated and vulnerable to Hawaiian energy policy changes. Since over three quarters of HEI's generation capacity is fossil fuel based, sociopolitical pressures like the push to reduce energy dependence on fossil fuels are forcing the company to adapt its energy portfolio (the types of energy used in generating electricity).[5] The bank is facing pressures from lower interest yields that threaten the company's net interest margin, or the weighted average interest rate on the overall loan portfolio.[6]

Business Overview

As a holding company, Hawaiian Electric Industries operates its electric utilities and banking units separately. While many utility companies often use holding companies as parents to the overall utility group, HEI is a combination of a electric utility holding company and a banking unit it acquired in 1998. Its combined electric utilities control 95% of the retail electrical market across the Hawaiian archipelago and are responsible for the delivery of electricity to over 439,000 retail customers. American Savings Bank, HEI's banking unit, provides a full range of banking and insurance services to individual and business customers through its 63 branch offices and insurance agency subsidiary. It is the third largest bank in Hawaii by total deposits, and accounts for over a third of HEI's net operating income[7].

Due to Hawaii's increasing demand for electricity, Hawaiian Electric Company (HECO), HEI's utility company, has encouraged local efforts to develop alternative energy sources in addition to welcoming efforts by some customers to generate their own power using renewable resources, like solar water heating[8]. This, combined with the company's plans to add 500MW of generation capacity by 2016, should help the electric utilities improve its generating efficiency assuming that Hawaii's electricity demand continues to increase at historical rates[9].

Business and Financial Metrics[10]

In 2009, HE earned a net income of $83.0 million on $101.3 million in total revenue. This represents an 8.0% decrease in net income on an 8.2% decrease in total revenues from 2008, when the company generated a net income of $90.3 million on $110.3 million in revenues.

Business Segments

Hawaiian Electric Industries has three main electric utilities, Hawaiian Electric Company (HECO), Maui Electric Company (MECO) and Hawaiian Electric Light Company (HELCO). While they operate independently, both MECO and HELCO are considered subsidiaries of HECO in HE's 10-K [11].

Electric Utilities

Through its electric utility subsidiaries and contracted partners, Hawaiian Electric Industries had a combined generation capacity of 2223 Megawatts (MW). In order to provide the additional power necessary to meet peak energy demand, HE has purchase agreements with AES Hawaii, Kalaeloa Partners, L.P., Apollo Energy Corporation, Hamakua Energy Partners, HPOWER, and Kaheawa Wind Power for an additional 540 MW of capacity[12]. HE's energy portfolio (sources of power generation) consists almost exlusively of oil and diesel combustion with only 140 MW of capacity devoted to renewable sources, though this excludes the 540 MW of contracted wind power. HE has plans to expand its renewable energy generation capacity to 500 MW by 2016[9].

  • Hawaiian Electric Company (HECO): HECO has a total generation capacity of 1672 MW. This segment is HE's largest electric utility by KWH sales.[13].
  • Maui Electric Company (MECO): MECO has a total generation capacity of 281 MW. MECO is HE's second largest electric utility by KWH sales.
  • Hawaiian Electric Light Company (HELCO): HELCO has a total generation capacity of 270 MW. This segment is HE's smallest electric utility by KWH sales.[13].

American Savings Bank

American Savings Bank, HEI's banking unit, provides a full range of banking and insurance services to individual and business customers through its 63 branch offices and is the third largest bank in Hawaii by total assets[14]. It accounts for over a third of HE's net operating income and over half of HE's net income. ASB's earnings depend for the most part on net interest income, the net interest rate spread of its loan portfolio, noninterest income (fees) and its deposit liabilities and other borrowings.

Key Trends and Forces

Hawaii's Economic Outlook is Weakening

Hawaii's geographic isolation from the mainland (1,988 mi southwest of North America) forces the state to be largely self-sufficient. Since the cost of imports is so high, the islands have a relatively high cost of living with inflation outpacing the national average by 1-2% (on average) since 2003. In many ways, the need for self-sustainability has forced the state's economy to include a diverse mix of industries, though tourism remains the dominant industry followed by transportation and real estate. Since HE's operates exclusively in Hawaii, the company's future growth is closely tied to the continued growth of Hawaii's economy.

Although HE's electricity customers will continue to buy their electricity from the same source, HE's banking unit's mortgage portfolio is likely to shrink. Although HE is unlikely to lose market share to competing electrical utilities, lower demand from increased conservation on the part of consumers could adversely impact future revenues. Further, the company's unusual business model makes it extremely difficult for it to recruit talented executives who understand both the banking and energy businesses.

HE's Net Margin Depends on HE's Ability to Pass on Costs

Hawaiian Electric Industries' electric utilities are heavily regulated by several local and federal government agencies. Rate changes are approved and monitored at a federal level by the Federal Energy Regulation Commission (FERC) and locally by Hawaii's Public Utility Commission (PUC). Any rate hikes or costs which HE wishes to pass through to their customers via rate hikes must be approved by the PUC. The regulatory lag in granting these requests for any utility often means that utilities are unable to quickly recover their costs, which pressures margins. This could also force HE to rely more heavily on debt to finance their operations, which could be difficult considering the current credit crisis and HE's mediocre credit rating[15].

Generating Capacity & Upgrades are Needed to Improve Margins

With only 1685 MW of firm generating capacity and 538 MW of additional capacity under contract, Hawaiian Electric Company is one of the smaller electric utilities in the United States. Unlike mainland utilities, HEI is geographically isolated and is solely responsible for delivering power to 95% of the Hawaiian islands. Normally, electric utilities can purchase electricity on wholesale electricity markets to meet unanticipated spikes and fluctuations in demand in order to avoid activating older and less efficient plants. HEI can only purchase power from local sources and thus, is extremely limited by on-island generating capacity.


Due to its monopoly of the Hawaiian electricity market, HEI has no true local competitors. HEI's banking unit, however, competes with several other banks in the region.

  • First Hawaiian Bank The largest market share of deposits in Hawaii. First Hawaiian Bank is a subsidiary of BNP Paribas SA (BNPQY). The bank has 58 branches across the state[7].
  • Bank of Hawaii (BOH) The second largest bank presence in Hawaii, Bank of Hawaii (BOH) has 72 branches across the state[7].
  • Central Pacific Bank The fourth largest bank by deposits in Hawaii. Central Pacific Bank is a subsidiary of Central Pacific Financial Corporation (CPF). The bank has 39 branches across the state[7].
  • Territorial Savings Bank The fifth largest bank by deposits in Hawaii, Territorial Savings Bank has 24 branches across the state.[7]


  1. Hawaiian Electric Industries (HEI) 10-K 2007 pg. 17
  2. Hawaiian Electric Company (HECO) Profile
  3. American Savings Bank Profile. About us: Our History & Culture.
  4. Hawaiian Electric Annual Report 2008 pg. 7
  5. Hawaiisenergyfuture.com press release July 18, 2008
  6. Hawaiian Electric Industries (HEI) 10-K 2007 pg. 79
  7. 7.0 7.1 7.2 7.3 7.4 Market Share by Deposits FDIC
  8. Hawaiian Electric Company (HECO) Net Energy Metering Website
  9. 9.0 9.1 HECO Renewable Energy Profile
  10. HE 2009form=10-K pg. 90  
  11. Hawaiian Electric Industries 10-K 2007 exhibit 21
  12. Hawaiian Electric Industries (HEI) Annual Report 2007 pg. 88
  13. 13.0 13.1 Hawaiian Electric Industries (HEI) 10-K 2007 pg. 4
  14. Hawaiian Electric Industries (HEI) 10-K 2007 pg. 34
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