Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — EEI Financial Conference 2018
62 slides from Hawaiian Electric Industries's conference presentation, Nov 11, 2018
Slide 1: Hawaiian Electric Industries, Inc. EEI Financial Conference
Hawaiian Electric Industries, Inc. EEI Financial Conference November 10 – 13, 2018
Slide 2: Cautionary statements and risk factors that may affect future results
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 could cause actual results to d
Slide 3: A catalyst for a better Hawaii
A catalyst for a better Hawaii
Slide 4: HEI's businesses share a common goal: serving as a catalyst for a better Hawaii
HEI’s businesses share a common goal: serving as a catalyst for a better Hawaii Subsidiary contributions to net income1 Bank 37% Utility 63% 2 Market capitalization $4.1B 2, 3 Total enterprise value $6.1B Capital structure: consolidated common equity to total capitalization 51% 2 Dividend yield 3.3%
Slide 5: 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 6: Hawaii economy continues to grow
Hawaii economy continues to grow Unemployment rate (%) Hawaii visitor arrivals (millions) USA Hawaii 6.2 9.9 10.1 10.2 10.3 5.3 8.7 8.9 9.4 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 arrivals u
Slide 7: Solid YTD 2018 earnings growth
Solid YTD 2018 earnings growth Efficient conversion of net income growth to EPS growth Net Income EPS (Diluted) (in millions) $152 $133 $1.40 $61 $1.22 $50 $0.56 $0.46 $108 $95 $0.99 $0.87 ($12) ($17) ($0.11) ($0.15) YTD Sep 2017 YTD Sep 2018 YTD Sep 2017 YTD Sep 2018 Utility Bank Holding Co. & Ot
Slide 8: HEI LTM ROE strengthens as triennial rate cases resume
HEI LTM ROE strengthens as triennial rate cases resume Continued bank ROE expansion due to tax reform and net interest income growth GAAP LTM 9/30/18 ROE includes 4Q17 tax reform impact Consolidated HEI ROE Twelve Months Ended September 30 9.4% (Core) Core Earnings Adjustment 8.5% 8.7% (GAAP) (G
Slide 9: Hawaiian Electric: Advancing Hawaii's clean energy transition
Hawaiian Electric: Advancing Hawaii’s clean energy transition
Slide 10: Renewable energy and grid transformations advancing quickly with key frameworks in place
Renewable energy and grid transformations advancing quickly with key frameworks in place Approves Hawaiian Electric base rate Approves Hawaii adjustment due to Electric Light base Interim D&O Interim D&O in federal tax reform rate adjustment due in Maui Hawaii Electric Light to federal tax reform El
Slide 11: Additional utility updates
Additional utility updates Hawaiian Electric Highlights Implementing initiatives to increase efficiency and provide more customer benefits ‒ Pole ownership agreement to provide greater efficiency and new revenue and technology opportunities ‒ Enterprise Resource Planning system went live in Octobe
Slide 12: Utility regulatory mechanisms provide financial stability during renewable transition
Utility regulatory mechanisms provide financial stability during renewable transition Mechanisms What they do Provides predictable revenue stream by fixing net revenues at level approved in last rate Sales decoupling case (revenues not linked to kWh sales) Revenue adjustment Annually adjusts revenue
Slide 13: Hawaii oil prices are volatile and exceed mainland U.S.
Hawaii oil prices are volatile and exceed mainland U.S. Price per bbl Low Sulfur Fuel Oil vs. Crude Oil September 2011 to September 2018 $145 $125 HAWAII OIL PRICES $105 $85 CRUDE OIL PRICES $65 $45 $25 10
Slide 14: Oil is the primary driver of rates in Hawaii
Oil is the primary driver of rates in Hawaii Fuel Purchased Energy Fossil Fuels Revenue Taxes 40 Breakdown of Hawaiian Electric Rates1 Purchased Energy Renewables (typical residential bill) PPAC Expenses All Other Sept 2018 35 $169.09 31.8 31.5 31.3 30.9 30 29.1 December 2017 $141.82 25 13.5 12.1 24
Slide 15: Renewable energy is cost competitive in Hawaii
Renewable energy is cost competitive in Hawaii Utility fossil fuel energy cost Contracted renewable energy cost Significant reduction in cost of utility-scale Subject to volatile oil prices renewables Pre-2016 2016+ PPAs 0.40 PPAs Proposed and Approved 0.35 Oil 0.30 Energy Cost ($/kWh) Wind 0.25 12/
Slide 16: 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 ambitious in the nation 2020 target of 30% 35.0% 30.0% 25.8%26.8% 25.0% 23.2% 21.3% 20.0% 18.2% 13.9% 15.0% 12.0% 9.4% 9.5% 9.5% 10.0% 5.0% 0.0% 2008 2009 2010 2011 2012 2013 2
Slide 17: YTD utility financial highlights
YTD utility financial highlights ($ in millions) Utility net income Key utility earnings drivers, after-tax YTD 2018 vs fav/(unfav) YTD 2017 RAM and MPIR revenues 24(a) Rate relief for Hawaiian Electric, Hawaii Electric Light and Maui Electric 19 Operation & maintenance, excluding net (25) income ne
Slide 18: Utility LTM ROE
Utility LTM ROE Consolidated Utility ROE Twelve Months Ended September 30 7.7% (core) 7.2% 7.2% (GAAP) (GAAP) Core Earnings Adjustment 2017 2018 Consolidated Utility Hawaiian Electric Hawaii Electric Light Maui Electric 2018 GAAP 7.2% 7.0% 8.3% 7.1% 2017 GAAP 7.2% 7.3% 6.5% 7.0% 1 Allowed 9.5% 9.5%
Slide 19: 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 16
Slide 20: Performance incentive mechanisms (PIMs)
Performance incentive mechanisms (PIMs) Current PIMs1 Reliability Customer Service Fuel Cost Resource Acquisitions $4.0 Phase 1: $3.5 $2.0 $2.5 Phase 2: $3.0 $1.3 $0.0 $0.0 $0.0 $0.0 $0.5 3.5 ($1.3) ($2.5) ($2.0) ($3.3) ($3.3) ($4.0) Interuption Interuption Call Center Fuel Cost Risk Demand Renewabl
Slide 21: Clean and reliable energy drives capital investment
Clean and reliable energy drives capital investment Capital Expenditures Forecast Rate Base Forecast (in millions) (in millions) $600 $5,000 $400-500 $400-500 $450 $401 $400 $318 $4,000 $3,500- $300 $3,290- 3,600 $3,150- 3,380 $150 3,180 $2,972 $3,000 $2,833 $- 2016A 2017A 2018E 2019E 2020E Forecast
Slide 22: American Savings Bank: Strong fundamentals and performance
American Savings Bank: Strong fundamentals and performance
Slide 23: Strong bank financial results
Strong bank financial results American Savings Bank Highlights Continued strong financial performance Expanding net interest margin, improving operational efficiency and positive tax reform impact Focus on making banking easy, deepening customer relationships New campus provides more opportu
Slide 24: Third consecutive quarter of strong bank net income growth
Third consecutive quarter of strong bank net income growth Driven by higher net interest income and net positive impact of tax reform Bank net income ($ in millions) $70.0 Key bank earnings drivers, after-tax YTD 2018 vs $60.0 fav/(unfav) YTD 2017 $50.0 Net interest income 9 $40.0 Provision for lo
Slide 25: Revenue growth driven primarily by net interest income
Revenue growth driven primarily by net interest income ($ in millions) ASB has a track record of converting deposit growth to higher net interest income 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 26: Strong net interest margin
Strong net interest margin Asset Yield (%) Net Interest Margin (%) 4.50 4.00 4.00 3.50 3.98 3.99 4.06 3.88 3.88 3.00 3Q17 4Q17 1Q18 2Q18 3Q18 3.50 Cost of Funds (%) 3.81 1.20 3.76 3.76 3.69 3.68 0.80 0.40 0.20 0.21 0.23 0.24 0.26 0.00 3.00 3Q17 4Q17 1Q18 2Q18 3Q18 3Q17 4Q17 1Q18 2Q18 3Q18 Source for
Slide 27: Low-risk loan mix
Low-risk loan mix Total loans at 9/30/18 - $4.8B1 HELOC 20%2 Fixed-rate Residential 44% mortgage Consumer 5% Residential construction & lot loans 1% Commercial markets 12% Commercial real estate Commercial construction 16% 1 Before deferred fees, discounts and allowance for loan losses 2% 2 Borrower
Slide 28: Quality balance sheet and strong capital efficiency
Quality balance sheet and strong capital efficiency Peer Banks1 ASB2 Median of average yield on earning assets 4.29% Average yield on earning assets 4.06% Median of average cost of funds 0.74% Average cost of funds 0.26% Return on average equity 10.72% Return on average equity3 13.80% 100% of Loans
Slide 29: Pacific Current: Significant opportunity in Hawaii's sustainable infrastructure market
Pacific Current: Significant opportunity in Hawaii’s sustainable infrastructure market
Slide 30: New sustainable infrastructure investment platform
New sustainable infrastructure investment platform Advancing Hawaii’s Energy and Sustainability Sustainable Investment Strategy Goals through Competitive Investments • Invest in non-regulated clean energy and • Hawaii-based strategic capital sustainability projects consistent with HEI’s risk • Comme
Slide 31: Financial outlook
Financial outlook
Slide 32: 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 growth Schofield Generating Station investme
Slide 33: HEI financing outlook 2018
HEI financing outlook 2018* 2018 holding company sources & uses of capital (in millions) ~$305M ~$305M Other HC Exp. $20 Intend to maintain a Debt Maturities consolidated investment $50 grade profile Debt Issuance and Cash $155 No new equity required HEI Investments in Utility $100 Utility Divid
Slide 34: Debt maturities & credit ratings
Debt maturities* & credit ratings ($ in millions) 1600 $47 1400 1200 1000 800 $1,279 600 400 ** $75 $4 200 $52 $200** $4 $4 $4 $4 $96 $150 0 $50 $50 2018 2019 2020 2021 2022 Thereafter to 2048 HEI Hawaiian Electric Pacific Current Pacific Current: ~$4 million debt payment in each year Credit Ratings
Slide 35: Appendices
Appendices
Slide 36: Maui Electric rate case: 2018 test year
Maui Electric rate case: 2018 test year Hawaii PUC docket no. 2017-0150 June 2018 Adjustment for Tax Interim D&O Application Settlement Reform (8/9/18) (10/12/17) Approved New (2/26/18) (eff. 8/23/18) Depreciation Rates $21.2M $30.1M (6.5% increase over $12.5M $12.5M (9.3% increase over revenues at
Slide 37: 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) Approximately $53.7M (at Approximately $36.0M (at $106.4
Slide 38: 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) Approximately $9.9M (at Approximately $9.9M (at $19.3M 9.5% ROE)-$11.1M
Slide 39: Major project infrastructure recovery (MPIR) mechanism
Major project infrastructure recovery (MPIR) mechanism Hawaii PUC docket no. 2013-0141 MPIR adjustment mechanism established by PUC on April 27, 2017 in decoupling reexamination proceeding ‒ Allows recovery for eligible major projects in between rate cases through the revenue balancing account (RB
Slide 40: 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-year rate plan (3-year rate case cycle), performance incentives relating to reliability, customer service, demand response, renewabl
Slide 41: 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 42: 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 Electric’s 2017 test year rate case, the Commission approved: ‒ Inc
Slide 43: 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 44: 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 45: 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 46: 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 47: 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 48: Proven strategy, with two well-structured, valuable projects in portfolio
Proven strategy, with two well-structured, valuable projects in portfolio Hamakua Energy Combined Cycle Power Plant University of Hawaii (UH) Solar + Storage Honoka‘a, Hawaii Island (Acquired Nov. 2017) Maui and Oahu (Acquired Mar. 2018) • Critical generation resource for Hawaii Island • Large solar
Slide 49: Constance H. Lau
Constance H. Lau President and Chief Executive Officer Chairman Chairman Hawaiian Electric Industries, Inc. Hawaiian Electric Company, Inc. American Savings Bank, F.S.B Ms. Lau was named HEI President and Chief Executive Officer (CEO) in May 2006. She also serves as Chairman of HEI subsidiaries Hawa
Slide 50: Alan M. Oshima
Alan M. Oshima Hawaiian Electric Company President and Chief Executive Officer 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 t
Slide 51: Richard F. Wacker
Richard F. Wacker American Savings Bank, F.S.B. President and Chief Executive Officer 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 commerci
Slide 52: Greg C. Hazelton
Greg C. Hazelton Hawaiian Electric Industries, Inc. Executive Vice President, Chief Financial Officer and Treasurer 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
Slide 53: Scott Valentino
Scott Valentino Pacific Current, LLC President Mr. Valentino was named Pacific Current President in October 2018, after serving as Vice President, Finance at AltaGas, a Canadian diversified energy infrastructure company from 2015 to 2018. At AltaGas, Mr. Valentino oversaw the finance, commercial, ma
Slide 54: Tayne S. Y. Sekimura and Joseph Viola
Tayne S. Y. Sekimura Hawaiian Electric Company, Inc. Senior Vice President & Chief Financial Officer Ms. Sekimura became Hawaiian Electric’s Senior Vice President & Chief Financial Officer in September 2009. She has held numerous leadership positions in the company in the areas of Internal Audit, Co
Slide 55: Paul Ito and Julie R. Smolinski
Paul Ito Hawaiian Electric Industries, Inc. Vice President – Tax, Controller and Assistant Treasurer 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
Slide 56: 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 57: Reconciliation of GAAP to non-GAAP measures
RECONCILIATION OF GAAP! TO NON-GAAP MEASURES Hawaiian Electric Industries, Inc. and Subsidiaries (HEI) (Unaudited) ‘Twelve months ended September 30 2018 2017 HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average) Based on GAAP 8.7% 8.5% Based on non-GAAP (core) 9.4% 8.5% Hawaiian
Slide 58: 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 59: Forward-looking statements risk factors (continued)
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-Fran
Slide 60: Forward-looking statements risk factors (continued)
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 pro
Slide 61: Forward-looking statements risk factors (continued)
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 ar
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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