Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Evercore ISI Utility Conference 2022
52 slides from Hawaiian Electric Industries's conference presentation, Jan 14, 2022
Slide 1: Hawaiian Electric Industries, Inc. Evercore ISI Utility Conference
Hawaiian Electric Industries, Inc. Evercore ISI Utility Conference January 14, 2022
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 – A catalyst for a better Hawaii
HEI – A catalyst for a better Hawaii ✓ HEI’s strategy provides long-term shareholder and stakeholder value through strategic investments in Hawaii’s economy and a leading role in Hawaii’s transformation to a resilient, sustainable future ✓ Efficient capital generation and optimized capital structure
Slide 5: HEI overview
HEI overview Hawaii's largest corporation with a diversified platform supplying energy, providing financial services and investing in a sustainable future Catalyst for a better Hawaiʻi 65% (Utility) 3,702 8.3% Full time employees3 Hawaii- $4.6B 3.2% 35% (Bank) 5-year total return (Including 2,579 fo
Slide 6: 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 aggressive climate goals in a way that is safe, reliable, resilient, equitable and affordable Embedded Investing in Hawaii’s economic growth; fostering in
Slide 7: Track record of delivering shareholder value
Track record of delivering shareholder value Outperformed peer1 median TSR over 1 and 5 year periods2 Strong consolidated investment grade balance sheet provides access to competitively priced growth capital Efficient capital structure and growing dividends from subsidiaries limit need for external
Slide 8: Recent Developments
Recent Developments ✓ Leadership transition effective 1/1/22: • Scott Seu – HEI CEO • Shelee Kimura – Hawaiian Electric CEO ✓ First full year of PBR underway • Utility annual revenue adjustment approved • First project approved under Exceptional Project Recovery Mechanism • Process continues for fur
Slide 9: Hawaii economic update
Hawaii economic update Improved economic metrics; monitoring virus developments Unemployment Rate & YTD Visitor Arrivals Daily Arrivals (excludes flights from Canada) (In thousands) YTD visitor arrivals Unemployment rate 2021 2020 2019 10,000 12% 45,000 9,000 6.0% 40,000 8,000 10% 35,000 7,000 8% 30
Slide 10: COVID-19 Update
COVID-19 Update • Policies continue to support keeping economy open even with rise in cases due to Omicron • Dec. 2021 tourism arrivals 189% above Dec. 2020 • Continue to closely monitor developments regarding Omicron variant • 75% of Hawaii population fully vaccinated (In thousands) Hawaii Cases &
Slide 11: Advancing Hawaii’s decarbonization
HAWAIIAN ELECTRIC Advancing Hawaii’s decarbonization
Slide 12: Hawaiian Electric climate change action plan: A vision for 2030 and 2045
Hawaiian Electric climate change action plan: A vision for 2030 and 2045 ✓ 70% carbon emissions reduction by 2030 (vs 2005) ✓ Net-zero (or better) carbon emissions by 2045 ✓ Committed to set science-based targets 2030 Key steps in our 2030 plan Down payment on a decarbonized • Shutting down state’s
Slide 13: 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 Approved2 0.35 0.30 0.25 12/2
Slide 14: Encouraging rooftop PV, customer-sited resources
Encouraging rooftop PV, customer-sited resources Providing programs and infrastructure to integrate and incentivize DER Nation-leading rooftop solar penetration Cumulative residential PV installations (in megawatts) • 21% of all residential customers Net Energy Metering New DER programs • 37% of Oah
Slide 15: New PBR framework: Earnings primarily driven by 3 sources
New PBR framework: Earnings primarily driven by 3 sources Annual Revenue Performance Incentive 1 Adjustment (ARA) 2 Separate Recovery 3 Mechanisms (PIMs) • Inflation less customer dividend • Exceptional Project Recovery • PBR PIMs provide opportunity • Keeping baseline O&M and Mechanism (EPRM), inno
Slide 16: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST ($ in millions) $370-$480 Low range includes $450 $320-$440 baseline ARA capital $411 and approved $335 Separate separately recovered $290-$310 Recovery projects. High range includes ARA separately recovere
Slide 17: O&M efficiency remains a core focus
O&M efficiency remains a core focus • Accelerated delivery of management audit savings in 2021 • Focused on ongoing efficiencies to manage under ARA • Utility cost savings plan: − Reduced overtime through improved scheduling, coordination − Managed reductions in workforce (3% reduction in 2020, cont
Slide 18: Performance incentive mechanisms (PIMs) incentivize performance on key outcomes
Performance incentive mechanisms (PIMs) incentivize performance on key outcomes Maximum PIM rewards / (penalties) in $mm—Annual unless otherwise specified Existing PIMs (pre-PBR) PBR-established PIMs $5.0 $4.0 See next $3.0 page for RPS-A $2.0 $3.7 TBD $3.5 PIM $3.0 $1.0 $1.4 $1.5 $2.0 $2.0 $0.0 - (
Slide 19: RPS-A PIM rewards accelerated renewable energy growth
RPS-A PIM rewards accelerated renewable energy growth RPS-A PIM potential grows as Stage 1 & 2 RFP projects come online • Projects approved or pending approval have potential to add ~607 MW of solar and ~3 GWh of storage by ~2023 Statutory RPS1 PBR RPS-A3 ($ millions) Estimated ranges for RPS- Annua
Slide 20: Serving and investing in Hawaii’s families, businesses and communities
AMERICAN SAVINGS BANK Serving and investing in Hawaii’s families, businesses and communities
Slide 21: Conservatively managed bank with strong financial position
Conservatively managed bank with strong financial position SERVING HAWAII THROUGH OVER 95 YEARS OF ECONOMIC CYCLES ✓ One of Hawaii’s largest financial institutions – full service community bank with $9 billion1 in assets ✓ Track record of maintaining low risk profile, strong balance sheet and low-co
Slide 22: Transition to Anytime, Anywhere Banking
Transition to Anytime, Anywhere Banking Accelerating digital transformation to meet customers where they are Customers continue adopting digital options at accelerated pace with high levels of satisfaction EVERFI Financial Wellness Learn Cumulative Users (index = February 2021) ▪ Launched new websit
Slide 23: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 2.1% 3.4% 0.3% ✓ ~83% of portfolio secured by real estate (85% excl. PPP) 11.4% ✓ C&I represent ~11% of total loans (9% excl. PPP) 42.8% 2.1% ✓ Personal unsecured loans repre
Slide 24: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 2.96% Corporates Mortgage Revenue 1% Bonds Average cost of funds 0.06% 1% Return on avg. equity2 10.3% Government Backed 98% Core 100% of ASB Loans Loans Deposits loans 73% 56% 84% Investm
Slide 25: Negative provision reflects upgrades in credit portfolio
Negative provision reflects upgrades in credit portfolio ALLOWANCE FOR CREDIT LOSSES (ACL) ($ in millions) ACL: 1.51% $100 ACL: 1.48% $90 $78.3 $0.3 $2.0 $80 $75.9 $70 $60 $50 ACL - 6/30/21 3Q NCOs 3Q Provision for Credit ACL - 9/30/21 2 Losses1 2Q21 3Q212 Beginning ACL balance $91.8 $78.3 Quarterly
Slide 26: PPP fees, lower cost of funds help soften impact of margin pressures
PPP fees, lower cost of funds help soften impact of margin pressures YIELD ON EARNING ASSETS (%) PPP ($ in millions) Loans Fees 3.25 3.05 2.96 Funded $ / count $551 / 6,300 $23 Forgiveness / paydowns to date $441 $17 3Q20 2Q21 3Q21 Balance (as of 9/30/21) $137 $6 COST OF FUNDS (%) Actual PPP Ex. PPP
Slide 27: Investing in Sustainable Infrastructure
PACIFIC CURRENT Investing in Sustainable Infrastructure
Slide 28: Pacific Current provides non-regulated platform for sustainable infrastructure investment
Pacific Current provides non-regulated platform for sustainable infrastructure investment Drivers Sectors Criteria Sustainability is the Technology Technology driver of value Renewable Transportation Power Electrification Long term viability Climate adaptation ESG-aligned / local and resilience exec
Slide 29: Pacific Current: Focused on local partnerships and projects
Pacific Current: Focused on local partnerships and projects consistent with investment grade profile Long-term strategy, with modest earnings impact as we build Hawaii-based portfolio Solar plus battery storage projects at 5 60MW Hamakua Energy Plant, Hawaii Island campuses in University of Hawaii s
Slide 30: Financial update
Financial update HEI Catalyst for a better Hawai'i a
Slide 31: YTD 9/30/21 financial performance
YTD 9/30/21 financial performance Net Income (GAAP) Diluted EPS (GAAP) Consolidated LTM ROE ($ in millions) 10.3% $191.6 $1.75 $147.3 $1.35 $79.1 $0.72 9.4% YTD $41.9 $0.38 $126.3 $135.6 $1.15 $1.24 ($20.9) ($23.1) ($0.19) ($0.21) $65.0 $63.4 $0.59 $0.58 $12.2 $0.11 $19.3 $0.18 Q3 $60.1 $0.55 2020 2
Slide 32: HEI 2021 EPS guidance
HEI 2021 EPS guidance (as of November 5, 2021) HEI EPS: $2.10 - $2.20 PER SHARE [Previous $2.00 - $2.20] UTILITY EPS: $1.53 - $1.61 (Reaffirmed) BANK EPS: $0.79 - $0.94 (Reaffirmed) KEY ASSUMPTIONS: KEY ASSUMPTIONS: PBR fully implemented as of June 1, 2021; existing NIM (%) 2.80% - 3.00% cost tracke
Slide 33: Appendix
Appendix HEI Catalyst for a better Hawai'i a
Slide 34: Experienced, committed leadership team
Experienced, committed leadership team New HEI and Hawaiian Electric CEOs effective Jan. 1, 2022 Scott Seu Shelee Kimura Ann Teranishi Greg Hazelton Kurt Murao HEI Hawaiian Electric American Savings Bank HEI HEI President & CEO President & CEO President & CEO EVP & Chief Financial EVP, General Couns
Slide 35: HEI financing outlook 2021
HEI financing outlook 2021 (as of November 5, 2021) 2021 HOLDING COMPANY SOURCES & USES OF CAPITAL Both bank and utility ($ in millions) remain net cash flow providers to holding company ~$245 ~$245 HC Expense, No external equity ~$30 required in 2021 Debt Issuance, ~$75 HEI Investments Balance shee
Slide 36: Solid 3Q21 HEI consolidated results
Solid 3Q21 HEI consolidated results HEI Consolidated 3Q21 selected key drivers QTD EPS (GAAP) $0.59 $0.58 Utility • Lower revenues due to timing, with target revenues recognized for year unchanged • Higher O&M from additional overhauls, partly offset by cost efficiencies 3Q20 3Q21 • On track to deli
Slide 37: Continuing to drive toward 100% RPS as we pursue our carbon reduction goal
Continuing to drive toward 100% RPS as we pursue our carbon reduction goal Hawaii’s renewable portfolio standard (RPS) Exceeded 2020 RPS milestone of 30% milestones 2020 RPS = 34.5% 40% 35% 35% 30% 28%(1) 27% 27% 26% 25% 23% 21% 20% 18% 15% 14% 12% 10% 9% 10% 10% 5% 0% 2008 2009 2010 2011 2012 2013
Slide 38: 3Q21 utility financial highlights
3Q21 utility financial highlights ($ in millions) Key drivers vs 3Q20 ✓ Lower revenues from timing change in target revenue recognition methodology, and annual revenue adjustment mechanism − $3 million management audit savings delivered to customers ✓ Higher O&M expense: − More generating facility o
Slide 39: Utility LTM ROE
Utility LTM ROE 1 2 3 4 5 Structural Lagged 39
Slide 40: New PBR framework
New PBR framework In full effect as of June 1, 2021 Pre-PBR mechanisms Change under PBR 3-year rate plan 5-year rate plan Revenue Annual revenue adjustment (ARA) adjustment Accounts for inflation, productivity improvements (set at zero), material events mechanism (RAM) outside utility control, custo
Slide 41: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 PUC Order in Nov. 2021 revised procedural schedule for Preliminary statements of position due in Feb. Proceeding to evolve regulatory framework to better align with co
Slide 42: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 43: 3Q21 bank financial highlights
3Q21 bank financial highlights ($ in millions) Key drivers vs 2Q21 ✓ Lower release of reserves for credit losses ✓ Net interest income flat − Earning asset growth and PPP fees soften impact of margin pressures − Record low cost of funds ✓ Higher noninterest expense reflects strong performance (highe
Slide 44: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong As of 9/30/21 Access to large amounts of secured funding ASB has more than $245M of excess equity above the “well capitalized” level Secured funding available ($ in millions) $4,523 Capital Ratio Tier 1 leverage $3,686 $3,333 As of 9/30/21 7.99% $2,486 ** $1,
Slide 45: Bank real estate secured portfolio characteristics
Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs As of 9/30/21 ($ in millions) CRE owner- Commercial construction occupied $224 / 5% $122 / 3% Commercial real estate $855M CRE investor & $224M CRE owner Residential mortgage ✓ Commercial investor $2,201 / 52% occup
Slide 46: Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries
Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries ($ in millions) Commercial & Industrial (ex. National Syndication) • Commercial portfolio is Accommodation and Food Services well diversified with Real Estate Rental and Leasing highest concentration to Accommodati
Slide 47: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics Consumer Portfolio Composition ($ in millions) Personal Unsecured Loans 710 $150 705 59% 700 $100 695 $50 690 685 $- 12/31/2020 3/31/2021 6/30/2021 9/30/2021 Personal unsecured loans Personal line of credit ** PUL - Balance PUL - FICO Residential construc
Slide 48: Bank national syndication risk characteristics
Bank national syndication risk characteristics Other NR Manufacturing BB A- $6 / 3% $8 / 5% $15 / 9% $15 / 9% $13 / 7% BBB Retail $30 / 17% $28 / 16% $172 REIT $172 $87 / 51% BB+ $60 / 35% Healthcare BBB- $36 / 21% $46 / 27% National syndication ✓ Represents ~3% of overall loan portfolio ✓ 51% or ~$
Slide 49: 2021 ASB peer group
2021 ASB peer group Allegiance Bancshares, Inc. ABTX First Financial Bankshares, Inc. FFIN OFG Bancorp OFG Banc of California, Inc. BANC First Foundation Inc. FFWM Peoples Bancorp Inc. PEBO BancFirst Corporation BANF Financial Institutions, Inc. FISI Premier Financial Corp. PFC Bryn Mawr Bank Corpor
Slide 50: 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 51: 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 52: 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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