Hawaiian Electric Industries · NYSE:HE

Hawaiian Electric Industries — Q1 2018 Earnings Presentation

54 slides from Hawaiian Electric Industries's earnings presentation, May 10, 2018

  1. Slide 1: 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

  2. Slide 2: Cautionary Note Regarding Forward-Looking Statements (continued)

    • the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units; • the ability of the Utilities to negotiate, periodically, favorable agreements for significant resource

  3. Slide 3: First Quarter 2018 Financial Results and Outlook

    Hawaiian Electric Industries, Inc. First Quarter 2018 Financial Results and Outlook May 10, 2018

  4. Slide 4: 1Q 2018 consolidated earnings results

    1Q 2018 consolidated earnings results  In line with full year expectations  Includes highest quarterly net income in bank’s history Net Income Diluted EPS (in millions) $40.2 $34.2 $0.37 $0.31 Q1 2017 Q1 2018 2

  5. Slide 5: Continued progress on utility initiatives; PBR docket opened

    Continued progress on utility initiatives; PBR docket opened Hawaiian Electric Highlights  Providing net benefits of tax reform to customers as we continue our transition back to a triennial rate case cycle  Filed Electrification of Transportation (EoT) Strategic Roadmap  On track to meet or exce

  6. Slide 6: Solid bank performance; growing Pacific Current

    Solid bank performance; growing Pacific Current American Savings Bank Highlights  Continued strong financial performance  Good fundamentals coupled with positive tax reform impact  Honolulu campus on track; completion expected this year Pacific Current Highlights  Announced second investment – s

  7. Slide 7: Hawaii's economy continues to grow

    Hawaii’s economy continues to grow Year-over- March 2018 YTD 2018 year change Tourism Arrivals +12.5% +9.4% Expenditures +13.5% +10.1% Unemployment • March 2018 – Hawaii: 2.1%; U.S.: 4.1% • YTD April 2018 Oahu sales volume: – Single family homes, up 0.6% from the prior year Real Estate – Condominium

  8. Slide 8: Q1 2018 earnings by segment

    Q1 2018 earnings by segment EPS (Diluted) Net Income (in millions) $40 $0.37 $34 $0.31 $27 $0.25 $21 $0.20 $0.17 $16 $19 $0.15 ($0.03) ($0.06) ($3) ($6) 2017 2018 2017 2018 Utility Bank Holding Co. & Other Note: Columns may not foot due to rounding . 6

  9. Slide 9: HEI LTM ROE

    HEI LTM ROE  GAAP and Core LTM 3/31/18 ROE reflect continued transition to triennial rate case cycle  GAAP LTM 3/31/18 ROE includes 4Q17 tax reform impact  Continued expansion of bank ROE due to tax reform and growth in net interest income Consolidated HEI ROE Twelve Months Ended March 31 12.5% (

  10. Slide 10: 1Q18 utility financial highlights

    1Q18 utility financial highlights ($ in millions) Key utility earnings drivers, after-tax 1Q18 vs Utility net income fav/(unfav) 1Q17 RAM revenues 11 (a) Interim rate relief for Hawaiian Electric and 5 Hawaii Electric Light Operation & maintenance, excluding net (7) income neutral items $27.5 Deprec

  11. Slide 11: Strong bank financial results

    Strong bank financial results ($ in millions)  Highest quarterly net income in bank’s history  Driven by higher net interest income and net positive impact of tax reform Bank net income Key bank earnings drivers, after-tax 1Q18 vs 1Q18 vs fav/(unfav) 4Q17 1Q17 Net interest income 1 3 Provision for

  12. Slide 12: Solid bank profitability

    Solid bank profitability Return on assets (%) Net interest margin (%) 1.57 1.22 1.12 3.76 3.64 3.75 ~3.7 - 3.8 >1.10 Target ASB Peers Target ASB Peers 1Q18 1Q18 ASB Target ASB QTD Annualized Peers1 High Performing Peers2 Source for peer data: SNL Financial (based upon data available as of May 9, 201

  13. Slide 13: Higher net interest margin

    Higher net interest margin 4.50 Asset yield % 4.00 4.00 Net interest margin % 3.50 3.98 3.88 3.88 3.88 3.88 3.00 3.50 1Q17 2Q17 3Q17 4Q17 1Q18 0.80 3.76 3.68 3.68 3.69 3.68 Liability cost % 0.40 3.00 1Q17 2Q17 3Q17 4Q17 1Q18 0.20 0.21 0.20 0.21 0.23 0.00 1 2 ASB Peers High Performing Peers 1Q17 2Q17

  14. Slide 14: Net interest income growth

    Net interest income growth ($ in millions)  Driven by higher yields on earning assets and strong deposit growth that funded earning asset growth Total loans $4,730 $4,672 $4,743 +6.1% annualized Net interest income and noninterest income Net interest income Noninterest income $69.9 $72.2 $71.4 $72.

  15. Slide 15: Credit quality

    Credit quality ($ in millions) Net charge-offs1 Nonaccrual loans2 0.53% 0.50% 0.51% 0.49% 0.32% 0.53% 0.29% 0.28% 0.26% 0.43% 0.44% 0.49% 0.43% 0.21% 0.14% 0.41% 0.40% 0.08% 0.39% 0.06% 0.38% 0.04% 0.11% 0.03% 0.05% 0.07% 0.02% 0.03% $25.1 $23.4 $23.6 $21.0 $19.4 $3.9 $3.7 $3.4 $3.8 $3.5 $3.1 $3.3 $

  16. Slide 16: Quality balance sheet

    Quality balance sheet  100% of ASB loans funded with low-cost core deposits Peer Banks1 ASB 12/31/17 (%) 3/31/18 (%) Core Deposits Loans Loans 63 68 Core Deposits 72 77 Leverage ratio: 8.6% Tangible common equity to tangible assets: 7.7% Total capital ratio: 14.0% Certificates of Deposit 15 Investm

  17. Slide 17: HEI 2018 EPS guidance

    HEI 2018 EPS guidance (as of May 10, 2018) HEI EPS: $1.80 - $2.00 per share No new equity issuances through 2018 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  O&M1

  18. Slide 18: Summary

    Summary  Focused on enterprise-wide mission to be a catalyst for a better Hawaii  Hawaiian Electric – Providing net benefits of tax reform to utility customers – On track to meet or exceed state’s target of 30% renewable energy by 2020 – Performance-based ratemaking docket opened – Creating resili

  19. Slide 19: Slide 19

  20. Slide 20: Appendices

    Appendices 18

  21. Slide 21: Other Developments

    Regulatory progress is being made at a rapid pace  Resumption of triennial rate case cycle Approves  PUC support of key strategies Hawaiian Electric Approves Hawaii base rate Electric Light base adjustment due rate adjustment due to federal tax to federal tax reform Approves demand reform Interim

  22. Slide 22: 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, 3-year rate case cycle, performance incentives relating to reliability, customer service, demand response and renewable energy procurement

  23. Slide 23: 2018 rates and recovery mechanism developments

    2018 rates and recovery mechanism developments  Interim Decision and Order (D&O) effective Aug. 31, 2017 Hawaii Electric Light – Rate Increase of 3.4% ($9.9 million) Allowed ROE of 9.5$ 2016 Rate Case  PUC approved adjusted interim reflecting tax reform effective May 1, 2018 (Docket No. 2015-0170)

  24. Slide 24: Clean and reliable energy the primary driver of our capital investment strategy

    Clean and reliable energy the primary driver of our capital investment strategy Year End Rate Base Forecast (in millions) = Top of Range $4,000 = Bottom of Range $3,700 $3,450 $200 $3,500 $3,260 $150 $60 $3,000 $2,500 $3,500 $3,200 $3,300 $2,833 $2,972 $2,000 $1,500 2016 2017 2018 2019 2020 1 Rate B

  25. Slide 25: Utility LTM ROE

    Utility LTM ROE Consolidated Utility ROE Twelve Months Ended March 31 7.9% (core) 7.4% (core) 7.8% (GAAP) 6.9% (GAAP) 2017 2018 Consolidated Utility Hawaiian Electric Hawaii Electric Light Maui Electric 2018 GAAP 6.9% 6.9% 7.5% 6.4% 2017 GAAP 7.8% 7.9% 7.5% 8.1% 1 Allowed 9.4% 9.5% 9.5% 9.0% Note: L

  26. Slide 26: Utility LTM ROE reflects continued transition to triennial rate case cycle

    Utility LTM ROE reflects continued transition to triennial rate case cycle  ROE gap expected to narrow as transition continues LTM 3/31/18 Consolidated Utility ROE 9.3 Structural Lagged Items One-time 24

  27. Slide 27: National leader in renewable energy integration and distributed generation

    National leader in renewable energy integration and distributed generation Rapid growth of renewables, especially solar Committed to achieving Hawaii’s 100% renewable goal by 2045 MW 1,200 2017 Renewable Portfolio Standard1 Consolidated Oahu Maui County Hawaii Island 1,000 26.8% 20.8% 34.2% 56.6% 80

  28. Slide 28: 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 utilty-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/

  29. Slide 29: Oil is the primary driver of rates in Hawaii

    Oil is the primary driver of rates in Hawaii Fuel Breakdown of Hawaiian Electric Rates1 Purchased Energy Fossil Fuels Revenue Taxes 40 (typical residential bill) Purchased Energy Renewables PPAC Expenses All Other December 35 2013 $173.33 May 31.8 31.5 2018 30.9 $149.05 30 29.1 December December 201

  30. Slide 30: Hawaii oil prices exceed mainland U.S.

    Hawaii oil prices exceed mainland U.S. Low Sulfur Fuel Oil vs. Crude Oil Price per bbl March 2012 to March 2018 $145 $125 HAWAII HAWAII OIL PRICES OIL OIL PRICES HAWAII HAWAII OIL PRICES HAWAII OIL PRICES PRICES $105 HAWAII OIL PRICES HAWAII OIL PRICES HAWAII OIL PRICES $85 CRUDE OIL PRICES $65 CRUD

  31. Slide 31: 2017 impact of loss of January RAM revenue recognition method

    2017 impact of loss of January 1 RAM revenue recognition method Calendar Year Method – Beginning January 2017 10 $40M RAM Revenues 8 9 9 9 9 9 9 (in $ millions) 8 8 8 8 8 • Per settlement with Consumer Advocate approved by the 6 7 PUC in 2013, Hawaiian Electric recorded RAM revenues 4 beginning Janu

  32. Slide 32: Utility regulatory mechanisms provide financial stability during renewable transition

    Utility regulatory mechanisms provide financial stability during renewable transition Mechanisms What they do Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last rate case (revenues not linked to kWh sales) Revenue adjustment Annually adjusts revenue

  33. Slide 33: Components of decoupling

    Components of decoupling Hawaii PUC Docket No. 2008 - 0274 Hawaii PUC Docket No. for the decoupling review: 2013 - 0141 Components 1. Sales Delinks utility revenues from electricity usage decoupling  GAAP revenue = revenue approved in the last rate case (interim or final) via a Revenue Balancing 

  34. Slide 34: Components of decoupling

    Components of decoupling Hawaii PUC Docket No. 2008 - 0274 Hawaii PUC Docket No. for the decoupling review: 2013 - 0141 Components 2. RAM Revenue Lesser of: Adjustment  2a - RAM Revenue Adjustment based on the RAM provisions in place prior to Order No. 32735** -or- Allowed  2b - RAM Revenue Adjust

  35. Slide 35: Components of decoupling

    Components of decoupling Hawaii PUC Docket No. 2008 - 0274 Hawaii PUC Docket No. for the decoupling review: 2013 - 0141 Components 2a. RAM Revenue RAM for Rate Base – Component 2 Adjustment  Change in rate base compared to test year levels in last rate case, for certain items including annual Deter

  36. Slide 36: Components of decoupling

    Components of decoupling Hawaii PUC Docket No. 2008 - 0274 Hawaii PUC Docket No. For the decoupling review: 2013 - 0141 Components 2b. RAM Revenue Cumulative RAM for 2018 RAM Revenue Adjustment – Adjustment  Prior year RAM Cap Target Revenues times GDPPI (2.1% for 2018) + prior year RAM Cap Cap Rev

  37. Slide 37: 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

  38. Slide 38: Grid Modernization Strategy update

    Grid Modernization Strategy update Hawaii PUC Docket No. 2017-0226  Implementation of grid modernization strategy approved by PUC February 2018, with project applications to follow  Customer and stakeholder engagement used to define grid modernization goals; engagement to continue as implementatio

  39. Slide 39: Electrification of Transportation (EoT) Strategic Roadmap

    Electrification of Transportation (EoT) Strategic Roadmap Hawaii PUC Docket No. 2016-0168  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;

  40. Slide 40: Maui Electric Rate Case: 2018 Test Year

    Maui Electric Rate Case: 2018 Test Year Hawaii PUC Docket No. 2017-0150 Application Adjustment for Tax Reform (10/12/17) (filed 2/26/18) $30.1M $21.2M (6.5% increase over revenues at current Amount requested (9.3% increase over revenues at current effective rates) effective rates) 1 Lower tax rate r

  41. Slide 41: Hawaiian Electric Rate Case: 2017 Test Year

    Hawaiian Electric Rate Case: 2017 Test Year Hawaii PUC Docket No. 2016-0328 March 2018 Settlement/ Application Settlement Interim D&O Tax Reform Act Impact (12/16/16) (11/15/17) (12/15/17 as modified) (3/5/18) Approximately $53.7M (at 9.5% Approximately $36.0M (at 9.5% $106.4M ROE)-$58.8M (at 9.75%

  42. Slide 42: Hawaii Electric Light Rate Case: 2016 Test Year

    Hawaii Electric Light Rate Case: 2016 Test Year Hawaii PUC Docket No. 2015-0170 Application Settlement Interim D&O Adjustment to Interim Increase (9/19/16) (7/11/17) (eff. 8/31/17) (eff 5/1/18) Approximately $9.9M (at 9.5% Approximately $9.9M (at 9.5% $19.3M ROE)-$11.1M (at 9.75% ROE)2 Lower tax rat

  43. Slide 43: Maui Electric Rate Case: 2012 Test Year

    Maui Electric Rate Case: 2012 Test Year Hawaii PUC Docket No. 2011-0092 Application Interim D&O (eff.6/1/12) Final D&O (7/22/11) (eff.8/1/13) $27.5M1 $13.1M3 $5.3M4 Base Request (6.7% increase) (3.2% increase) (1.3% increase) $19.8M $19.7M $19.7M Depr. & amort. expenses without mechanisms with mecha

  44. Slide 44: Low-risk loan mix

    Low-risk loan mix Total loans at 3/31/18 - $4.7B1 Commercial construction $115 (3%) Commercial real estate $767 (16%) Residential 1-4 Commercial markets $2,116 (45%) $568 (12%) Residential Construction & Lot Loans $32 (<1%) Consumer $230 (5%) HELOC $915 (19%) Note: $ in millions, unless otherwise no

  45. Slide 45: 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

  46. Slide 46: Overall, tax reform a net positive moving forward

    Overall, tax reform a net positive moving forward 2017 one-time adjustments* Primary ongoing impacts • Benefits from lower tax rates to flow to customers • Loss of bonus depreciation increases need for financing of capex and ($9.2) million should incrementally increase rate base going forward Hawaii

  47. Slide 47: Pacific Current provides non-regulated platform for clean energy and sustainability investments

    Pacific Current provides non-regulated platform for clean energy and sustainability investments  Focused on local partnerships and projects consistent with investment grade profile  Initial project cash flow helping fund start-up costs Awarded and contracted for solar plus battery Acquired Hamakua

  48. Slide 48: HEI financing outlook 2018

    HEI financing outlook 2018* 2018 holding company sources & uses of capital (in millions) ~$335M ~$335M Other HC Exp. $20 Debt Maturities  Intend to maintain a $50 consolidated investment Debt Issuance/cash grade profile reduction HEI $190  Dividend reinvestment plan Investments in Utility $130 pur

  49. Slide 49: Continued favorable outlook for Hawaii's economy

    Continued favorable outlook for Hawaii’s economy Year-over-year % 2017 2018 2019 change Tourism Visitor Arrivals +4.9% +6.5% +1.2% 2017 2018 2019 Unemployment Rate (%) Hawaii +2.4% +2.1% +2.3% 2017 2018 2019 Real personal income Hawaii +0.5% +2.0% +1.8% 2017 2018 2019 Real State GDP Hawaii +1.1% +1.

  50. Slide 50: Visitor expenditures

    March 2018 Hawaii visitor arrivals up 12.5% and visitor expenditures up 13.5% 1400 30.0% Year vs. Year % Change Year vs. Year % Change 1200 15.0% Visitor arrivals (in thousands) 1000 0.0% 800 -15.0% 600 -30.0% Monthly Visitor Arrivals Yr-Yr% Change Visitor Arrivals 400 -45.0% Mar-15 Mar-16 Mar-17 Ma

  51. Slide 51: Hawaii unemployment rate remains low at 2.1%

    Hawaii unemployment rate remains low at 2.1% 12 Seasonally adjusted 8 Hawaii U.S. US: 4.1% 4 Hawaii: 2.1% 0 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 12 Not seasonally adjusted Not seasonally adjusted Honolulu County 8 Maui County Hawaii County: 2.3% Hawaii County

  52. Slide 52: Hawaii real estate market remains strong

    Hawaii real estate market remains strong Oahu Number of Sales and Median Sales Price $1,000,000 400 $800,000 Number of sales 300 Median price $600,000 200 $400,000 100 $200,000 $0 0 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Number of Sales Median Sales Price Median Sales

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  54. Slide 54: 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

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