Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — UBS Winter Infrastructure & Energy Virtual Conference 2021
62 slides from Hawaiian Electric Industries's conference presentation, Jan 12, 2021
Slide 1: Hawaiian Electric Industries, Inc.
Hawaiian Electric Industries, Inc. UBS Winter Infrastructure & Energy Virtual Conference January 12-13, 2021
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: Catalyst for a better Hawaii
HAWAIIAN ELECTRIC INDUSTRIES Catalyst for a better Hawaii
Slide 4: HEI overview
HEI overview Hawaii's largest corporation with a diversified platform supplying energy, providing financial services and investing in a sustainable future Kauai 2 Oahu 29 1 4 Molokai 1 Maui Utility Lanai 6 service territory 1 Hawaii Bank 4 branches1 1 Pacific Current projects 71% (Utility) 3,846 8%
Slide 5: ESG is in our DNA
ESG is in our DNA Strength of our companies is inextricably linked to the health of our environment, economy and communities Focused on achieving state’s 100% renewable energy and carbon neutrality goals in a way that is safe, reliable, resilient and affordable Embedded in Core Investing in Hawaii’s
Slide 6: Recent highlights
Recent highlights As of 3Q20: Improved Hawaiian Electric earnings; American Savings Bank set new company records in mortgage banking income PUC issued Phase 2 PBR D&O in Dec. 2020, evolving regulatory framework to further align with customer needs and clean energy transition Robust efficiency
Slide 7: Phase 2 PBR D&O
Phase 2 PBR D&O
Slide 8: PBR D&O – Constructive framework developed in collaboration with stakeholders
PBR D&O – Constructive framework developed in collaboration with stakeholders • Core elements of PBR framework appear reasonable and generally consistent with prior record, providing incentives to more aggressively move ahead with modernizing our company and Hawaii’s energy system • Many mechanisms
Slide 9: Final PBR D&O issued, motion for clarification pending
Final PBR D&O issued, motion for clarification pending Core components reasonable, consistent with guiding principles Current mechanisms Change under PBR 3-year rate plan 5-year rate plan Revenue Annual revenue adjustment (ARA) adjustment Accounts for inflation, productivity improvements (set at zer
Slide 10: New performance incentive (PIMs) and shared savings mechanisms create additional earnings opportunities
New performance incentive (PIMs) and shared savings mechanisms (SSMs) create additional earnings opportunities Summary Upside / downside Interconnection Rewards and penalties based on utility ability to reduce +$3M / -$0.9M approval PIM time to interconnect DER systems <100 kW annually Grid services
Slide 11: Annual revenue adjustment mechanism formula
Annual revenue adjustment mechanism formula Annual target revenues now set with ARA during 5-year MRP Annual revenue adjustment formula: i-factor x-factor z-factor customer dividend Accounts for Productivity Ex post Two components: annual inflation factor opportunity to recover costs for (i) 0.22% a
Slide 12: COVID Response
COVID Response
Slide 13: Hawaii COVID case update
Hawaii COVID case update Focusing on community health and safety Hawaii Daily New Cases (statewide total) 400 350 300 250 New cases 200 150 100 7-day average 50 0 3/7 4/7 5/8 6/8 7/9 8/9 9/9 10/10 11/10 12/11 1/11 Average daily case rate in last 7 days, per 100K residents (as of 1/11/21) 0 – 15.2 20
Slide 14: Positive signs for Hawaii's economy since reopening
Positive signs for Hawaii’s economy since reopening • Oahu economy reopened late Sept. under tiered framework − Hotels, retailers, restaurants, fitness facilities, movie theaters, educational facilities, beaches, etc. open • Tourism sector reopened with Oct. 15 pre-arrival testing program for domest
Slide 15: Hawaii economic forecast
Hawaii economic forecast • UHERO forecast (base case) projects meaningful Hawaii economic recovery starting mid-2021 • Recent positive COVID-19 vaccine developments have potential to accelerate recovery − Over 25,000 doses of vaccine administered to essential healthcare workers and first responders
Slide 16: Financial update
Financial update
Slide 17: HEI is well positioned to weather COVID impacts
HEI is well positioned to weather COVID impacts • Consolidated enterprise comprised of stable operating subsidiaries in essential industries • Robust liquidity position enterprise-wide, with recent enhancements to strengthen liquidity at utility and holding company • No need for holding company to i
Slide 18: Strong foundation supports solid consolidated results and continued profitability
Strong foundation supports solid consolidated results and continued profitability YTD September Diluted EPS (GAAP) Consolidated LTM ROE • Consolidated enterprise 9.2% 9.4% comprised of stable operating $1.39 $1.35 subsidiaries in essential $0.56 $0.38 industries $1.02 $1.15 3Q19 3Q20 • Strong liquid
Slide 19: Hawaiian Electric – A source of strength as Hawaii recovers
Hawaiian Electric – A source of strength as Hawaii recovers CONSISTENTLY POWERING OUR STATE FOR OVER 129 YEARS Well positioned to serve as a source of strength, supporting Hawaii’s recovery Fully decoupled, with revenues adjusted for load decline impacts Good recovery mechanisms Deferral of CO
Slide 20: 2020 Utility outlook and drivers
2020 Utility outlook and drivers • HECO final D&O in Oct. 2020 approved settlement proposing no base rate increase − Base rates held flat; 9.5% allowed ROE; 58% equity capitalization Cost − Follows HELCO final decision in Jul. 2020 holding base rates flat efficiencies offsetting lack − No rate case
Slide 21: YTD 9/30/20 utility financial highlights
YTD 9/30/20 utility financial highlights ($ in millions) Year-over-year improvement driven by: O&M reductions: • Ongoing efficiency initiatives • Timing of generating unit overhauls • Deferral of COVID costs Revenue additions from decoupling and supportive regulatory mechanisms (RAM, MPIR) UTILI
Slide 22: American Savings Bank – Conservatively managed bank with strong financial position
American Savings Bank – Conservatively managed bank with strong financial position SERVING HAWAII THROUGH OVER 95 YEARS OF ECONOMIC CYCLES Prudent risk management is the foundation of our management approach Earning assets 100% funded by core and low-cost deposits Diverse, high quality loan port
Slide 23: YTD 9/30/20 bank financial highlights
YTD 9/30/20 bank financial highlights ($ in millions) Year-over-year variance driven by COVID economic environment: Increased provision for potential loan losses related to economic impacts from pandemic Low interest rates reduced net interest margin, but compression slowing Strong mortgage pr
Slide 24: ASB: Solid execution in dynamic environment
ASB: Solid execution in dynamic environment • Key elements returning to normal operations − Reopened several branches temporarily closed earlier in pandemic − Strong mortgage banking income from residential lending − Resumption of certain fees previously suspended during initial impact of COVID • Co
Slide 25: Record low funding cost and lower FAS 91 amortization partially offset asset yield decline
Record low funding cost and lower FAS 91 amortization partially offset asset yield decline NET INTEREST MARGIN (%) ASSET 4.11 3.96 3.39 3.25 YIELD (%) YTD NIM: 3.34% 3Q19 1Q20 2Q20 3Q20 3.82 3.35 3.72 to COST OF 0.30 3.21 3.12 3.25 FUNDS 0.24 (%) 0.18 0.13 ** 3Q19 1Q20 2Q20 3Q20 3Q19 1Q20 2Q20 3Q20
Slide 26: Higher noninterest income from core activities and lower noninterest expense drove 3Q20 performance
Higher noninterest income from core activities and lower noninterest expense drove 3Q20 performance Core activities and expense control partially offset 2Q20 gains on sales of securities NONINTEREST INCOME1 NONINTEREST EXPENSE ($ in millions) ($ in millions) $48.4 Gain on sale of securities $47.3 $9
Slide 27: Additional provision reflects 9/30/20 outlook
Additional provision reflects 9/30/20 outlook ALLOWANCE FOR CREDIT LOSSES (ACL) $100 ($ in millions) ACL: 1.67% $14.5 $91.5 $90 ACL: 1.50% $4.3 $81.3 $80 $81.3 $70 $60 $50 ACL - 6/30/20 3Q NCOs 3Q Provision for Credit ACL - 9/30/20 Losses 1Q20 2Q20 3Q20 Beginning ACL balance $53.4 $77.1 $81.3 DAY 1
Slide 28: Loan deferrals declining
Loan deferrals declining • 3% of portfolio on active deferral as of 9/30/20 (2% of portfolio on second deferral) • Of loans that had a deferral at any time from Mar. 2020, 76% had returned to payment as of 9/30/20 • Previously deferred loan delinquency = 1.0%; overall portfolio delinquency = 0.3% DE
Slide 29: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 3.2% 2.1% 0.2% 3.5% ~78% of portfolio secured by real estate (83% excl. PPP) C&I represent ~16% of total loans (9% excl. PPP) 15.5% Personal unsecured loans represent ~
Slide 30: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong ASB not expected to require capital from HEI Access to large amounts of secured ASB has over $266M of excess equity funding above “well capitalized” level Secured funding available ($ in millions) $3,333 Capital Ratio1 Tier 1 leverage2 $2,927 $3,000 As of 09/
Slide 31: Solid enterprise-wide capital and liquidity position
Solid enterprise-wide capital and liquidity position Modest 2021 long-term debt maturities Liquidity and balance sheet strong prefunded ($ in millions) Utility and bank expected to be self-funding in Liquidity 2020, with strong stand-alone balance sheets HEI HECO Credit facility capacity $150.0 $2
Slide 32: HEI financing outlook 2020
HEI financing outlook 2020 (as of Nov. 6, 2020) 2020 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) ~$210M ~$210M HC Expense, ~$30 Debt Issuance, Both bank and utility HEI Investments in ~$75 Utility, ~$35 remain net cash flow providers to holding company No change in net utility dividend
Slide 33: HEI 2020 guidance
HEI 2020 guidance (as of Nov. 6, 2020) UTILITY EPS: $1.46 – $1.54 BANK Pretax Pre-Provision (PTPP) Stable performance through supportive regulatory income increased to: $105 – $115 million framework and focus on cost reductions Continued profitable operations with upward revision to some pre-provisi
Slide 34: Advancing Hawaii's sustainable future
Advancing Hawaii’s sustainable future
Slide 35: Committed to ambitious climate goals
Committed to ambitious climate goals Hawaii’s goals of 100% RPS and carbon Expect to have exceeded 2020 RPS neutrality by 2045 are among most milestone of 30%1 ambitious in the nation 35% 3Q20 RPS = 34.9% (2) 30% 27% 27% 28% 26% 25% 23% 21% 20% 18% 15% 14% 12% 9% 10%10% 10% 5% 0% 2008 2009 2010 2011
Slide 36: Path to a 100% renewable, carbon neutral future
Path to a 100% renewable, carbon neutral future Leading a community-wide transformation • Advancing Hawaii’s largest-ever renewable energy and storage Aggressively procuring procurements renewable energy & storage • Helping enable end of coal in Hawaii in 2022, additional fossil plant retirement b
Slide 37: Aggressively pursuing clean energy additions
Aggressively pursuing clean energy additions • Procurements underway to increase future RPS achievement − Procurements significant given system peak load: Oahu: ~1200 MW, Hawaii Island: ~200 MW, Maui County: ~200 MW − Filed 9 PPAs for solar and storage and 2 self-build storage applications in 2H20 S
Slide 38: Encouraging rooftop PV, customer-sited resources
Encouraging rooftop PV, customer-sited resources Providing management and infrastructure to integrate, and programs to incentivize, DER Nation’s highest penetration of rooftop solar Cumulative residential PV installations (in megawatts) • 20% of all residential customers Net Energy Metering New DER
Slide 39: Renewable energy key to affordability, bill stability
Renewable energy key to affordability, bill stability UTILITY FOSSIL FUEL ENERGY COST CONTRACTED RENEWABLE ENERGY COST Subject to volatile oil prices Significant reduction in cost of utility-scale renewables Energy Cost ($/kWh) Pre-2016 PPAs 2016+ PPAs 0.40 Proposed and Approved 0.35 0.30 0.25 12/20
Slide 40: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST ($ millions) ($ millions) 4-Year CAGR ~4-6%3 $3,730- $4,010 $450 $350-450 $350-$450 $401 $411 $3,620- $340-$350 3,700 $3,490- 3,560 $3,425 $3,212 $2,972 2017A 2018A 2019A 2020E 2021E 2022
Slide 41: Pacific Current provides non-regulated platform for sustainable infrastructure investment
Pacific Current provides non-regulated platform for sustainable infrastructure investment Drivers Sectors Criteria Sustainability is the Technology Technology driver of value Renewable Transportation Power Electrification Long term viability Climate adaptation ESG-aligned / local and resilience exec
Slide 42: Initial project cash flow funding Pacific Current growth
Initial project cash flow funding Pacific Current growth • Focused on local partnerships and projects consistent with investment grade profile • Long-term strategy, with modest earnings impact as it builds Hawaii-based portfolio − Baseline plan anticipates building to ~$0.03-$0.05 EPS contribution o
Slide 43: ESG reporting focused on transparency, accuracy and increasing maturity
ESG reporting focused on transparency, accuracy and increasing maturity • Published first HEI consolidated ESG report (SASB-aligned) Sept. 2020 − Incorporates SASB metrics for electric utilities and banks − Engaged external firm to assist in review of ESG data processes and controls • Implementing p
Slide 44: ESG underpins key strategic initiatives
ESG underpins key strategic initiatives • Advancing 100% RPS and carbon neutrality goals while maintaining focus on reliability, resilience, affordability and equity − Filed and approved PPAs in recent RFPs would add ~600 MW renewable energy and ~3 GWh storage − #1 in nation in rooftop solar penetra
Slide 45: Appendix
Appendix
Slide 46: Hawaii's resilient real estate values
Hawaii’s resilient real estate values Demonstrates lower risk of bank portfolio Honolulu single family home prices declined less and rebounded faster in last recession 303 305 Global financial crisis 294 275 273 245 248 215 189 185 155 125 Index 2000 Q1 = 100 95 2000 2001 2002 2003 2004 2005 2006 20
Slide 47: Debt maturities & credit ratings
Debt maturities1 & credit ratings ($ in millions) HEI Hawaiian Electric Pacific Current Pacific Current: ~$4 - $7 million debt payment each year $1,600 $59 Credit HEI Hawaiian Electric ASB Ratings 2 Moody’s Unrated/Positive/P-3 Baa2/Positive/P-2 n/a $1,200 3 S&P BBB-/Positive/A-3 BBB-/Positive/A-3 B
Slide 48: Hawaiian Electric: Focused on efficiency and affordability
Hawaiian Electric: Focused on efficiency and affordability Hawaiian Electric 2020 rate case final D&O received Oct. 2020 − Maintained 9.5% allowed ROE, 58% equity Plan for Achieving $25M capitalization Management Audit Customer Savings − Removed 90% cap on Schofield generating Commitment by YE 2022*
Slide 49: Utility LTM ROE
Utility LTM ROE 3Q20 CONSOLIDATED UTILITY ROE ROE (%) 1 2 3 4 5 6 7 8 9 Structural Lagged 49
Slide 50: Hawaiian Electric: Current authorized rates
Hawaiian Electric: Current authorized rates Hawaiian Electric Hawaii Electric Light Maui Electric (Oahu) (Hawaii Island) (Maui County) Return on Average 9.50% 9.50% 9.50% Common Equity Common Equity 57.15% 56.83% 57.02% Capitalization Average Rate Base $1,993 million $534 million $454 million Date A
Slide 51: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 PUC issued Phase 2 D&O Dec. 23, 2020. Tariff Development. Post D&O Working Group. Proceeding to evolve regulatory framework to better align with Companies filed Motion
Slide 52: Performance incentive mechanisms (PIMs)
Performance incentive mechanisms (PIMs) Current PIMs1 ($ in millions) Reliability Customer Fuel Cost Resource Acquisitions Service $4.0 $2.0 $6.5 $3.1 $1.4 $0.5 $0.0 $0.0 ($1.4) $0.0 $0.0 $0.0 ($2.0) ($3.4) ($3.4) ($3.1) ($4.0) Interruption Interruption Call Center Fossil Fuel Demand Renewable Durat
Slide 53: Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs
Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs CRE owner- Commercial construction Commercial real estate occupied 3% 5% Represents 16% of overall loan portfolio Commercial investor Residential $668M CRE investor & $217M CRE owner 16% mortgage occupied 52%
Slide 54: Bank national syndication risk characteristics
Bank national syndication risk characteristics Consumer NR Healthcare A- Disc BB- $6 / 3% $7 / 4% ($ in millions) $13 / 7% Industrial $8 / 4% $10 / 5% $10 / 5% Consumer BBB+ Staples BB+ $49 / 25% $10 / 5% $44 / 23% Technology $15 / 8% $193 $193 Materials $19 / 10% BBB- BBB REIT $124 $41 / 21% $30 /
Slide 55: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics Consumer Portfolio Composition Personal Unsecured Loans ($ in millions) 704 $250 702 $200 71% 700 $150 698 $100 696 $50 694 $- 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 Personal unsecured loans Personal line of credit PUL - Balance PUL - FICO **
Slide 56: Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries
Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries ($ in millions) Commercial & Industrial (ex. National Syndication) • Commercial portfolio is Health Care and Social Assistance well diversified with Construction highest concentration to Real Estate Rental and Leas
Slide 57: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 PEER BANKS3 Average yield on earning assets 3.25% Median of average yield on earning assets 3.66% Average cost of funds 0.13% Median of average cost of funds 0.50% Return on avg. equity2 6.75% Return on avg. equity 10.37% 100% of Core Loans Core ASB
Slide 58: Lower loss rates and sufficient PTPP income at bank to offset even historical peak loss
Lower loss rates and sufficient PTPP income at bank to offset even historical peak loss ASB’s net charge-offs have been ASB has substantial loss absorption consistently below national average capacity 2020 expected PTPP income: $105 to $115 million Historical loss experience applied to a $5B loan po
Slide 59: 2020 ASB peer group
2020 ASB peer group Bancorp, Inc. TBBK Enterprise Financial Services Corp EFSC Sandy Spring Bancorp, Inc. SASR FB Financial Corporation FBK Veritex Holdings, Inc. VBTX Financial Institutions, Inc. FISI Meta Financial Group, Inc. CASH Heritage Financial Corporation HFWA Washington Trust Bancorp, Inc.
Slide 60: 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 61: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • 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
Slide 62: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • 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 and tax rates, increases in ca
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