Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Investor Presentation (December 2018)
62 slides from Hawaiian Electric Industries's investor presentation, December 2018
Slide 1: Hawaiian Electric Industries, Inc.
Hawaiian Electric Industries, Inc. December 2018
Slide 2: Forward looking statements
Forward looking statements Cautionary statements and risk factors that may affect future results This presentation includes forward-looking statements within the meaning of the federal securities laws. Actual results could differ materially from such forward-looking statements. The factors that coul
Slide 3: A catalyst for a better Hawaii
HAWAIIAN ELECTRIC INDUSTRIES A catalyst for a better Hawaii
Slide 4: Why HEI
Why HEI • Diversified business model provides the resources to invest in strategic growth and Hawaii’s sustainable future, while delivering consistent dividend • Efficient capital generation and optimized capital structure • Leading Hawaii toward a 100% clean energy, carbon neutral future with Hawai
Slide 5: HEI at a glance
HEI at a glance • Provides essential energy and financial services in Hawaii through three subsidiaries – Hawaiian Electric Company, American Savings Bank and Pacific Current $4.2B $6.1B 51% 3.2% 12.2% 63% (Utility) Market capitalization1 Total enterprise value1,2 Capital structure Dividend yield1 5
Slide 6: Presence on all major islands in Hawaii
Presence on all major islands in Hawaii Maui Electric Customers: 71,352 Utility Kauai 3 Generating capability: 268 MW locations Rate base: $0.45B Oahu 34 Renewable generation1: 34% Bank branches 4 Bank branches2 Molokai 1 Maui 6 Hawaiian Electric Customers: 304,948 1 Lanai Project Generating capabil
Slide 7: Hawaii's economic trends are strong
Hawaii’s economic trends are strong UNEMPLOYMENT RATE (%) HAWAII VISITOR ARRIVALS (MILLIONS) USA Hawaii 10.1 10.2 10.3 6.2 9.4 9.9 5.3 8.7 8.9 4.4 4.9 4.4 3.6 2.9 2.4 2014 2015 2016 2017 2015 2016 2017 2018E 2019E 2020E 2021E As of September 2018 – Hawaii: 2.2%; U.S.: 3.7% September 2018 YTD arrival
Slide 8: Solid YTD 2018 earnings growth
Solid YTD 2018 earnings growth Efficient NET INCOME EPS (DILUTED) (in millions) $152 $1.40 conversion of net income $133 $1.22 $61 $0.56 growth to EPS $50 $0.46 growth $108 $0.99 $95 $0.87 ($12) ($17) ($0.11) ($0.15) YTD Sep 2017 YTD Sep 2018 YTD Sep 2017 YTD Sep 2018 Holding Co. & Other Utility Ban
Slide 9: HEI LTM ROE strengthens as triennial rate cases resume
HEI LTM ROE strengthens as triennial rate cases resume CONSOLIDATED HEI ROE Continued bank Twelve Months Ended September 30 ROE expansion due to tax reform and net interest 9.4% (Core) income growth GAAP LTM 9/30/18 8.5% 8.7% (GAAP) (GAAP) ROE includes 4Q17 tax reform impact 2017 2018 Utility GAAP 7
Slide 10: Advancing Hawaii's clean energy transition
HAWAIIAN ELECTRIC Advancing Hawaii’s clean energy transition
Slide 11: Hawaiian Electric: Driving toward a 100% renewable future
Hawaiian Electric: Driving toward a 100% renewable future • Our utilities have provided energy to Hawaii for 125 years, and currently serve 95% of Hawaii through Hawaiian Electric, Maui Electric, and Hawaii Electric Light • Focused on providing affordable, reliable, renewable energy to all we serve
Slide 12: Renewable energy and grid transformations advancing quickly with key frameworks in place
Renewable energy and grid transformations advancing quickly with key frameworks in place PUC Approves Hawaii DECISIONS Approves Hawaiian Electric Electric Light base rate adjustment due base rate adjustment due to Interim D&O in federal tax reform to federal tax reform Maui Electric 2018 Interim D&O
Slide 13: Utility regulatory mechanisms provide financial stability during renewable transition
Utility regulatory mechanisms provide financial stability during renewable transition Mechanisms & Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last rate case what they do: (revenues not linked to kWh sales) Revenue adjustment mechanism (RAM) Annua
Slide 14: Recent utility highlights
Recent utility highlights • Driving greater efficiency and customer benefits - Pole ownership agreement with Hawaiian Telecom presents new revenue and technology opportunities - Committed to delivering $244 million in customer benefits from new SAP Enterprise Resource Planning and Enterprise Asset M
Slide 15: Hawaii oil prices are volatile and exceed mainland U.S.
Hawaii oil prices are volatile and exceed mainland U.S. LOW SULFUR FUEL OIL VS. CRUDE OIL SEPTEMBER 2011 TO SEPTEMBER 2018 Price per bbl $145 $125 HAWAII OIL PRICES $105 $85 $65 CRUDE OIL PRICES $45 $25 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18
Slide 16: Oil is the primary driver of rates in Hawaii
Oil is the primary driver of rates in Hawaii BREAKDOWN OF HAWAIIAN ELECTRIC RATES1 (typical residential bill) ¢/kWh Fuel Purchased Energy Fossil Fuels 40 Revenue Taxes Purchased Energy Renewables PPAC Expenses All Other September 2018 $169.09 31.8 31.5 31.3 30.9 30 29.1 December 2017 $141.82 13.5 12
Slide 17: Renewable energy is cost competitive in Hawaii
Renewable energy is cost competitive in Hawaii Oil UTILITY FOSSIL FUEL ENERGY COST CONTRACTED RENEWABLE ENERGY COST Subject to volatile oil prices Significant reduction in cost of utility-scale renewables Wind Energy Cost ($/kWh) 2016+ PPAs 0.40 Pre-2016 PPAs Proposed and Approved Solar 0.35 Biomass
Slide 18: Strong progress toward Hawaii's renewable energy goals
Strong progress toward Hawaii’s renewable energy goals HAWAII’S 100% BY 2045 RPS GOAL IS AMONG THE MOST ON COURSE TO EXCEED 2020 TARGET OF 30% AMBITIOUS IN THE NATION 35% 30% 27% 26% 25% 23% 21% 20% 18% 15% 14% 12% 9% 10% 10% 10% 5% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2020 18
Slide 19: YTD utility financial highlights
YTD utility financial highlights ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) YTD 2018 vs YTD 2017 RAM and MPIR revenues 241 Rate relief for Hawaiian Electric, Hawaii Electric 19 $108.4 Light and Maui Electric $94.6 Operation & maintenance, excluding net (25
Slide 20: Utility LTM ROE
Utility LTM ROE CONSOLIDATED UTILITY ROE Hawaii TWELVE MONTHS ENDED SEPTEMBER 30 Consolidated Hawaiian Maui Electric Utility Electric Electric 7.7% Light (core) 2018 GAAP 7.2% 7.0% 8.3% 7.1% 7.2% 7.2% 2017 GAAP 7.2% 7.3% 6.5% 7.0% (GAAP) (GAAP) 1 Allowed 9.5% 9.5% 9.5% 9.5% 2017 2018 Core Earnings A
Slide 21: Utility LTM ROE reflects triennial rate case transition
Utility LTM ROE reflects triennial rate case transition LTM 9/30/18 CONSOLIDATED UTILITY ROE Core ROE GAAP ROE Structural Lagged Items One-time 21
Slide 22: Performance incentive mechanisms (PIMs)
Performance incentive mechanisms (PIMs) CURRENT PIMS1 (in millions) RELIABILITY CUSTOMER FUEL COST RESOURCE ACQUISITIONS $4.0 SERVICE $2.0 $3.5 $2.5 $3.0 $1.3 $0.0 $0.0 $0.5 ($1.3) ($2.5) ($3.3) ($3.3) ($2.0) ($4.0) Interuption Interuption Call Center Fuel Cost Risk Demand Renewable Renewable Durati
Slide 23: Clean and reliable energy drives capital investment
Clean and reliable energy drives capital investment Compound CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST annual growth (in millions) (in millions) rate of ~5-7% $600 $5,000 through 2020 as $400-500 $400-500 3-Year CAGR ~5-7%1 we invest in $401 $400 $400 renewables, $318 $4,000 $3,500- reliabili
Slide 24: Serving and investing in Hawaii's families, businesses and communities
AMERICAN SAVINGS BANK Serving and investing in Hawaii’s families, businesses and communities
Slide 25: American Savings Bank: Strong fundamentals and performance
American Savings Bank: Strong fundamentals and performance • One of Hawaii’s largest financial institutions – full-service community bank with $7 billion in assets and 49 branches across the state • Strong and consistent profitability with growth opportunities in attractive Hawaii banking market • T
Slide 26: Third consecutive quarter of strong bank net income growth
Third consecutive quarter of strong bank net income growth Driven by higher net interest income and net positive impact of tax reform BANK NET INCOME YTD 2018 vs YTD ($ IN MILLIONS) Key bank earnings drivers, after-tax fav/(unfav) 2017 Net interest income 9 $60.7 Provision for loan losses (4) $50.1
Slide 27: Revenue growth driven primarily by net interest income
Revenue growth driven primarily by net interest income ASB has a track record of converting deposit growth to higher net interest income ($ in millions) TOTAL DEPOSITS GREW 6.6%1 AVERAGE INTEREST-EARNING ASSETS HIGHER NET INTEREST INCOME INCREASED 5.2% INCREASED 8.9% $76.4 $6,377 $71.4 $6,130 $6,063
Slide 28: Strong net interest margin
Strong net interest margin ASSET YIELD NET INTEREST MARGIN (%) 4.5 4.00 4.0 3.5 3.98 3.99 4.06 3.75 3.88 3.88 3.0 3Q17 4Q17 1Q18 2Q18 3Q18 3.50 COST OF FUNDS (%) 3.81 1.2 3.76 3.76 3.69 3.68 3.25 0.8 0.4 3.00 0.20 0.21 0.23 0.24 0.26 3Q17 4Q17 1Q18 2Q18 3Q18 0.0 3Q17 4Q17 1Q18 2Q18 3Q18 1 2 ASB Peer
Slide 29: Low-risk loan mix
Low-risk loan mix TOTAL LOANS AT 9/30/18 - $4.8B1 HELOC 20%2 Fixed-rate Consumer Residential 44% mortgage 5% Residential construction & lot loans 1% Commercial markets 12% Commercial construction Commercial real estate 2% 16% 1 Before deferred fees, discounts and allowance for loan losses 2 Borrower
Slide 30: Quality balance sheet and strong capital efficiency
Quality balance sheet and strong capital efficiency ASB1 PEER BANKS2 Average yield on earning assets 4.06% Median of average yield on earning assets 4.48% Average cost of funds 0.26% Median of average cost of funds 0.84% Return on average equity3 13.80% Return on average equity 11.00% 100% of Loans
Slide 31: Significant opportunity in Hawaii's sustainable infrastructure market
PACIFIC CURRENT Significant opportunity in Hawaii’s sustainable infrastructure market
Slide 32: New sustainable infrastructure investment platform
New sustainable infrastructure investment platform • Near-term focus on organizational build-out • Strong leadership with broad, relevant experience • Proof of strategy with first two projects proceeding well • Initial project’s earnings and cash flow helping fund Pacific Current start-up costs Adva
Slide 33: Financial outlook
Financial outlook Catalyst for a better Hawai‘i
Slide 34: HEI 2018 EPS guidance
HEI 2018 EPS guidance (as of November 7, 2018) HEI EPS: $1.80 - $2.00 PER SHARE UTILITY EPS: $1.33 - $1.46 BANK EPS: $0.68 - $0.74 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • No change to decoupling or recovery mechanisms • Low to mid-single digit earning asset • Schofield Generating Station investment reco
Slide 35: HEI financing outlook 2018
HEI financing outlook 2018* Intend to maintain 2018 HOLDING COMPANY SOURCES & USES OF CAPITAL (in millions) a consolidated investment grade ~$305M ~$305M profile Other HC Exp. $20 Debt Maturities $50 Debt Issuance and No new equity Cash required HEI Investments in $155 Utility $100 Utility Dividends
Slide 36: Debt maturities & credit ratings
Debt maturities1 & credit ratings ($ in millions) Credit 1600 HEI Hawaiian Electric ASB Ratings $47 HEI Hawaiian Electric Pacific Current 2 Pacific Current: ~$4 million debt payment in each year S&P BBB-/Stable/A-3 BBB-/Stable/A-3 BBB/Stable/A-2 1200 3 Moody’s Unrated/Stable/P-3 Baa2/Stable/P-2 n/a
Slide 37: Why HEI
Why HEI • Diversified business model provides the resources to invest in strategic growth and Hawaii’s sustainable future, while delivering consistent dividend • Efficient capital generation and optimized capital structure • Leading Hawaii toward a 100% clean energy, carbon neutral future with Hawai
Slide 38: Appendices
Appendices Catalyst for a better Hawai‘i
Slide 39: Maui Electric rate case: 2018 test year
Maui Electric rate case: 2018 test year Hawaii PUC docket no. 2017-0150 June 2018 Settlement Interim D&O Application Adjustment for Tax Reform Approved New Depreciation (8/9/18) (10/12/17) (2/26/18) Rates (eff. 8/23/18) $21.2M $30.1M (6.5% increase over revenues $12.5M $12.5M Amount requested (9.3%
Slide 40: Hawaiian Electric rate case: 2017 test year
Hawaiian Electric rate case: 2017 test year Hawaii PUC docket no. 2016-0328 March 2018 Settlement/ Final D&O Application Settlement Interim D&O Tax Reform Act Impact (6/22/18) (12/16/16) (11/15/17) (12/15/17 as modified) (3/5/18) (eff. 9/1/18) Amount requested $106.4M Approximately $53.7M (at Approx
Slide 41: Hawaii Electric Light rate case: 2016 test year
Hawaii Electric Light rate case: 2016 test year Hawaii PUC docket no. 2015-0170 Adjustment to Interim Final D&O Application Settlement Interim D&O Increase (6/29/18) (9/19/16) (7/11/17) (eff. 8/31/17) (eff 5/1/18) (eff. 10/1/18) Amount requested $19.3M Approximately $9.9M (at Approximately $9.9M (at
Slide 42: Major project infrastructure recovery (MPIR) mechanism
Major project infrastructure recovery (MPIR) mechanism Hawaii PUC docket no. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Recovery of Schofield Generating Station (SGS) project • Allows recovery for eligible major projects in between rate cases through the revenue capital costs
Slide 43: Performance-based regulation (PBR) proceeding
Performance-based regulation (PBR) proceeding Hawaii PUC docket no. 2018-0088 (opened 4/18/18) • Aspects of traditional PBR already in effect include decoupling, multi- • PUC Staff Report issued 7/10/18 provided initial set of proposed regulatory goals year rate plan (3-year rate case cycle), perfor
Slide 44: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Part of Hawaiian Electric 2017 test year rate case final decision & order (D&O) Hawaii PUC docket no. 2016-0328 • As part of the final D&O in Hawaiian Electric’s 2017 rate case, the Commission established a new fossil fuel cost risk sharing mechanism to be part of the n
Slide 45: Hawaiian Electric 2017 test year changes to fossil target heat rates and deadband
Hawaiian Electric 2017 test year changes to fossil target heat rates and deadband Part of Hawaiian Electric 2017 test year rate case final decision & order (D&O) Hawaii PUC docket no. 2016-0328 As part of the final D&O in Hawaiian TARGET HEAT RATE AND DEADBAND, 2011TY VS 2017TY Electric’s 2017 test
Slide 46: Power supply improvement plan (PSIP) update
Power supply improvement plan (PSIP) update Hawaii PUC docket no. 2014-0183 (closed) accepted on July 14, 2017 • Anticipates reaching 100% Renewable Portfolio Standard (RPS)1 by 2040, 5 years ahead of mandate • On track to meet or exceed 2020 milestone of 30% • Plan stresses the need to stay flexibl
Slide 47: Grid modernization strategy update
Grid modernization strategy update Hawaii PUC docket no. 2017-0226 • In February 2018 the PUC directed the Companies to implement the grid modernization strategy with project applications to follow • Customer and stakeholder engagement used to define grid modernization goals; engagement to continue
Slide 48: Electrification of transportation (EoT) strategic roadmap
Electrification of transportation (EoT) strategic roadmap Hawaii PUC docket no. 2018-0135 • Proposes role of the utility and identifies partners to increase adoption of electric vehicles (EV) and other electrification activities • Customer and stakeholder engagement used to define and develop plans;
Slide 49: Distributed energy resources (DER) update
Distributed energy resources (DER) update Hawaii PUC docket no. 2014-0192 • In February 2018, the Companies launched two new DER programs: - Smart Export: Intended for customers installing a rooftop PV system combined with a battery energy storage system. Customers may export energy between 4pm – 9a
Slide 50: ASB peer group – 2018
ASB peer group – 2018 * 1st Source Corp. SRCE First Commonwealth Financial FCF OFG Bancorp OFG Ameris Bancorp ABCB First Financial Bancorp. FFBC Opus Bank OPB * BancFirst Corp. BANF * First Financial Bankshares FFIN Pacific Premier Bancorp PPBI Bancorp Inc TBBK * First Merchants Corp. FRME * Park Na
Slide 51: Proven strategy, with two well-structured, valuable projects in portfolio
Proven strategy, with two well-structured, valuable projects in portfolio Hamakua Energy Combined Cycle University of Hawaii (UH) Solar + Power Plant (Acquired Nov. 2017) Storage (Acquired Mar. 2018) • Critical generation resource for Hawaii Island • Large solar plus battery storage systems at 5 cam
Slide 52: Biographies
Biographies Constance H. Lau Ms. Lau was named HEI President and Chief Executive Officer (CEO) in May 2006. She also serves as Chairman of HEI subsidiaries Hawaiian Electric Company (Hawaiian Electric) and American Savings Bank (ASB). Born and raised in Honolulu, Ms. Lau joined the HEI companies in
Slide 53: Biographies
Biographies Alan M. Oshima Mr. Oshima was named President and Chief Executive Officer of Hawaiian Electric effective Oct. 1, 2014. Mr. Oshima first joined Hawaiian Electric as a member of the board of directors in 2008. In 2011, he left the board to serve as HEI’s Executive Vice President for Corpor
Slide 54: Biographies
Biographies Richard F. Wacker Mr. Wacker was named President and Chief Executive Officer of ASB in November 2010 and serves on the ASB Board. Prior to joining ASB, Mr. Wacker was Chairman of Korea Exchange Bank (KEB), the fifth largest commercial bank in Korea and the largest foreign exchange bank i
Slide 55: Biographies
Biographies Greg C. Hazelton Mr. Hazelton was appointed HEI’s Executive Vice President and Chief Financial Officer (CFO) in April 2017, after serving as Senior Vice President, Finance beginning in October 2016. Mr. Hazelton was NW Natural Gas Company’s (NW Natural) Senior Vice President and CFO from
Slide 56: Biographies
Biographies Paul Ito Mr. Ito joined HEI in February 2018. Prior to joining HEI, he worked for Alexander & Baldwin, Inc. (A&B) in various roles, including as chief financial officer from June 2012 to July 2017 and senior vice president and treasurer from June 2012 to January 2018. He was A&B controll
Slide 57: Explanation of HEI's use of certain unaudited non-GAAP measures
Explanation of HEI’s use of certain unaudited non-GAAP measures HEI and Hawaiian Electric Company management use certain non-GAAP measures to evaluate the performance of HEI and the utility. Management believes these non-GAAP measures provide useful information and are a better indicator of the comp
Slide 58: Reconciliation of GAAP to Non-GAAP Measures
Reconciliation of GAAP to Non-GAAP Measures 58
Slide 59: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements This presentation 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
Slide 60: Forward-looking statement risk factors
• capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management, distributed generation, combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefi
Slide 61: Forward-looking statement risk factors
• 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
Slide 62: Corporate Headquarters and Investor Inquiries
Institutional Investor Corporate Headquarters and Securities Analyst Inquiries Hawaiian Electric Industries, Inc. Please direct inquiries to: 1001 Bishop Street, Suite 2900 Julie Smolinski Honolulu, Hawaii 96813 Director, Investor Relations Telephone: 808-543-5662 Telephone: 808-543-5874 Internet ad
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