Hawaiian Electric Industries · NYSE:HE

Hawaiian Electric Industries — Q3 2016 Earnings Presentation

51 slides from Hawaiian Electric Industries's earnings presentation, Nov 4, 2016

  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)

    in which the PUC: directed the Utilities to develop, among other things, Power Supply Improvement Plans, a Demand Response Portfolio Plan and a Distributed Generation Interconnection Plan; described the PUC’s inclinations on the future of Hawaii’s electric utilities and the vision, business strategi

  3. Slide 3: Cautionary Note Regarding Forward-Looking Statements (continued)

    • decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS); • potential enforcement actions by the Office of t

  4. Slide 4: 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

  5. Slide 5: Reconciliation of GAAP to Non-GAAP Measures

    1 RECONCILIATION OF GAAP TO NON-GAAP MEASURES Hawaiian Electric Company, Inc. and Subsidiaries Unaudited Three months ended September 30 Nine months ended September 30 ($ in millions) 2016 2015 2016 2015 HAWAIIAN ELECTRIC CONSOLIDATED COSTS RELATED TO THE TERMINATED MERGER WITH NEXTERA ENERGY Pre-ta

  6. Slide 6: Reconciliation of 2016 Non-GAAP (Core) EPS Guidance to GAAP EPS Guidance

    RECONCILIATION OF 2016 NON-GAAP (CORE) EPS GUIDANCE TO GAAP EPS GUIDANCE The 2016 reconciling adjustments from GAAP diluted earnings per common share (EPS) to core EPS are limited to the 2016 costs, fees and reimbursements (includes year-to-date actual results through 9/30/16) related to the recentl

  7. Slide 7: 2016 Third Quarter Financial Results and Outlook

    Hawaiian Electric Industries, Inc. 2016 Third Quarter Financial Results and Outlook November 4, 2016

  8. Slide 8: YTD 2016 Highlights

    YTD 2016 Highlights  Third quarter results significantly impacted by the NEE merger termination fee  Hawaiian Electric marks 125 years of serving Hawaii  Comprehensive Update to  Excellent deposit growth Power Supply Improvement and higher net interest Plans income  Focused on opportunities to

  9. Slide 9: Utility Developments

    Utility Developments Hawaii Electric Light  Hawaii Electric Light 2016 test year rate case 2016 Rate Case application filed on Sept 19, 2016 (Docket No. 2015-0170)  Requested $19.3 million (6.5% increase) Hawaiian Electric  Interim decision estimated in Q3 2017 Company  Hawaiian Electric Company

  10. Slide 10: Hawaii Economic Trends

    Hawaii Economic Trends Year-over-year Sep YTD Sep percent change 2016 2016 Tourism Arrivals +3.0% +2.6% Expenditures +10.4% +3.7% Unemployment  Sep 2016 – Hawaii: 3.3%; U.S.: 5.0%  YTD Sep 2016 Oahu single family home sales Real Estate up 5.2%  Oahu median single family home price for Sep 2016 up

  11. Slide 11: Consolidated 3Q Earnings – Net Income

    Consolidated 3Q Earnings – Net Income (in millions) GAAP Net Income HC Non-Core Adjustments Core Net Income $127.1 (merger/spin-related) $47.0 $15.1 $63.3 $50.7 $52.4 $47.0 $43.0 $65.1 $43.0 $63.8 $13.5 $13.5 $15.1 ($5.8) ($4.1) $1.2 * ($1.7) 3Q15 3Q16 3Q15 3Q16 3Q15 3Q16 Utility Bank Holding Co (HC

  12. Slide 12: Consolidated 3Q Earnings - EPS

    Consolidated 3Q Earnings - EPS GAAP EPS (Diluted) HC Non-Core Adjustments Core EPS (Diluted) Per Share (Diluted) $1.17 (merger/spin-related) $0.43 $0.14 $0.58 $0.47 $0.49 $0.43 $0.40 $0.60 $0.59 $0.40 $0.12 $0.12 $0.14 $0.01* ($0.05) ($0.02) ($0.04) 3Q15 3Q16 3Q15 3Q16 3Q15 3Q16 Utility Bank Holding

  13. Slide 13: HEI ROE

    HEI ROE 1 Consolidated ROE Twelve Months Ended September 30 15.0% 12.3% (GAAP) 9.1% (Core) 9.5% (Core) 8.1% (GAAP) 0.0% 2015 2016 Core Earnings Adjustment 2015 2016 GAAP GAAP Utility 7.9% 8.1% Bank 9.5% 9.8% See the reconciliation of GAAP to Non-GAAP (Core) measures preceding this presentation 1 Cal

  14. Slide 14: 3Q16 Utility & Bank Financial Highlights

    3Q16 Utility & Bank Financial Highlights (in millions) Utility Net Income Key utility core earnings 3Q16 $90 drivers fav/(unfav) vs ($ in millions after-tax) 3Q15 Net revenues*: Recovery of investments & costs 2 Fuel efficiency (2) $45 Net revenues -- O&M, excluding net income $43 $47 neutral items

  15. Slide 15: Utility ROE

    Utility ROE 1 Consolidated Utility ROE Twelve Months Ended September 30 10% 5% GAAP GAAP 7.9% 8.1% 0% 2015 2016 Consolidated Hawaiian Hawaii Maui Utility Electric Electric Light Electric 2015 7.9% 7.9% 6.3% 9.2%* 2016 8.1% 7.9% 8.5% 8.4% 2 Allowed 9.8% 10.0% 10.0% 9.0% 1 Calculated using net income

  16. Slide 16: Bank YTD Performance On Track to Meet 2016 Targets

    Bank YTD Performance On Track to Meet 2016 Targets Return on Assets (%) Loan Growth (%) 11.1 1.20 8.6 1.05 0.97 mid- ~0.90 0.89 single digit 3.4 -1.7 Target ASB ASB Peers YTD Target ASB ASB Peers YTD 3Q16 YTD 3Q16 YTD Net Interest Margin (%) Net Charge-offs (%) ~0.15 to 0.20 0.19 3.57 3.59 0.20 ~3.5

  17. Slide 17: Net Interest Margin

    Net Interest Margin 4.50 Asset Yield % 4.25 4.00 3.84 3.80 Net Interest Margin (NIM) % 3.76 3.81 3.74 4.00 3.75 3.50 3.25 3.00 3.50 3Q15 4Q15 1Q16 2Q16 3Q16 0.60 Liability Cost % 3.62 3.58 3.57 3.53 3.55 0.40 3.00 0.23 0.23 0.24 0.22 0.22 3Q15 4Q15 1Q16 2Q16 3Q16 0.20 0.00 3Q15 4Q15 1Q16 2Q16 3Q16 1

  18. Slide 18: Pretax Noninterest Income

    Pretax Noninterest Income (in millions) $20.0 $18.5 $18.5 $16.8 $16.6 $15.4 $5.7 $5.6 $5.7 $5.7 $5.5 $10.0 $5.9 $5.6 $5.7 $5.3 $5.2 $2.2 $2.1 $2.0 $2.2 $1.4 $2.3 $2.2 $1.0 $1.5 $3.4 $1.2 $0.6 $2.8 $2.4 $1.3 $1.3 $0.0 3Q15 4Q15 1Q16 2Q16 3Q16 Other Income Gains on sale of securities Mortgage banking

  19. Slide 19: Credit quality

    Credit quality Quarter Revised Annual Target* (in millions) 0.60% $21.0 0.50% $16 to $19 0.40% $16.0 $12 0.30% $11.0 $7 to $9 0.20% 0.21% 0.15% 0.20% $6 $6.0 0.10% $5.7 0.10% $4.8 $4.8 $3.0 $2.5 $2.3 $1.0 0.00% $1.1 $0.8 $1.7 ($0.9) NCO ~0.15% -0.08% to 0.20% -0.10% ($4.0) 3Q15 4Q15 1Q16 2Q16 3Q16 2

  20. Slide 20: Nonperforming Assets Ratio

    Nonperforming Assets Ratio Percentages Dollars in millions 1.75% $60.0 $53.2 1.50% $48.8 $50.0 $47.7 $47.1 $45.6 1.25% 1.12% $40.0 1.02% 1.03% 1.02% 1.00% 1.00% $30.0 0.75% $20.0 0.50% $10.0 0.25% 0.00% $0.0 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 1 2 ASB Loans Peers High Performing Peers

  21. Slide 21: Quality Balance Sheet

    Quality Balance Sheet  Overall loan-to-deposit ratio of 88%  100% of ASB loans funded with low-cost core deposits Peer Banks1 ASB 6/30/16 (%) 9/30/16 (%) Core Deposits Loans Core 59 74 Deposits Loans 75 72 Certificates of Deposit 18 Investment Investment Certificates of Securities Securities Depos

  22. Slide 22: Hawaiian Electric Industries Looking Ahead

    Hawaiian Electric Industries Looking Ahead 16

  23. Slide 23: Clean Energy & Reliability Projects Drive Capital Investments

    Clean Energy & Reliability Projects Drive Capital Investments Year End Rate Base Forecast ($ in millions) = Top of Range $3,250 = Bottom of Range $3,070 $3,000 $2,900 $2,950 $2,750 $2,830 $2,750 $2,750 $2,500 2015 2016 2017 2018 Rate Base Growth 0% 3-5% 5-7% 2 Capex (net of CIAC) $319 $340 $470 $500

  24. Slide 24: 2016 Core EPS Guidance

    2016 Core EPS Guidance1 (as of November 4, 2016) HEI Core EPS: $1.72 – $1.78 per share  No new equity issuances other than DRIP estimated at ~$35 million Utility Core EPS: $1.28 – $1.36 Bank: $0.50 – $0.54 Key Assumptions: Key Assumptions:  Decoupling model: March 2015 D&O  Net interest income: m

  25. Slide 25: In Summary

    In Summary  HEI remains a strong company that is well- positioned to achieve its goals of providing long- term value for our customers, community, employees and shareholders  Hawaiian Electric Company  Industry leader for integrating renewables and distributed generation  Focused on expanding cu

  26. Slide 26: Hawaiian Electric Industries, Inc.

    Hawaiian Electric Industries, Inc.

  27. Slide 27: Appendix

    Appendix 21

  28. Slide 28: Oil is the Primary Driver of Volatile Rates in Hawaii

    Oil is the Primary Driver of Volatile Rates in Hawaii Breakdown of Hawaiian Electric Rates 1 Typical 40 Residential Bill Dec 2012 $163.64 35 Typical 31.8 Residential 30.9 31.5 Bill October 29.1 30 2016 Typical $130.77 Residential Bill 24.3 12.1 24.1 25 Dec 2009 13.5 12.4 $122.42 22.6 12.6 ¢/kWh 18.7

  29. Slide 29: Reducing Customer Bills By Addressing Every Part of the Bill

    Reducing Customer Bills By Addressing Every Part of the Bill 30.0 1 Increase plant efficiency 24.3 Increase “ramp” and “turndown rates” 25.0 Provide less back-up Demand response programs Substitute lower cost fuel and renewables (e.g., LNG) Fuel, 6.8 (28%) Deactivate older generating units 20.0 Purs

  30. Slide 30: Renewable Energy Can Be Cost Competitive in Hawaii

    Renewable Energy Can Be Cost Competitive in Hawaii Depending on Oil Price Volatility 0.40 Energy costs subject to volatile oil Renewables: long-term fixed price prices contracts with predetermined escalators 0.35 Solar 0.30 Biomass Energy Cost ($/kWh) 0.25 Wind December 2014 0.20 0.15 Dec 2010 Septe

  31. Slide 31: Plant Additions – Baseline by Co. & Consolidated Major Projects

    Plant Additions – Baseline by Co. & Consolidated Major Projects Major Projects = PUC approved projects > $2.5M 5-year (2011-2015) historical average baseline projects: (in millions) HE: $218 $500 HL: $48 ME: $42 $450 Total 308 $390 $400 $371 $350 $21 $350 $33 $26 $55 $299 $50 $300 $48 $2 $59 $28 $24

  32. Slide 32: Hawaii's Oil Situation

    Hawaii’s Oil Situation Low Sulfur Fuel Oil vs. Crude Oil Price per BBL December 2010 to September 2016 $145 $125 HAWAII OIL PRICES $105 HAWAII OIL PRICES HAWAII OIL PRICES $85 $65 $45 CRUDE OIL PRICES $25 Hawaii oil prices based on Hawaiian Electric low sulfur fuel oil inventory prices Crude oil pri

  33. Slide 33: Rate Case Schedule

    Rate Case Schedule As required by decoupling mechanism Hawaiian Electric 2014 Abbreviated Rate Case filed 6/27/14 Maui Electric 2015 Abbreviated Rate Case Filed 12/30/14 Hawaii Electric Light 2016 Test Year Rate Case Filed 9/19/16 Hawaiian Electric 2017 Test Year Rate Case to be filed1 Maui Electric

  34. Slide 34: Regulatory Response Framework: Response to D&Os

    Regulatory Response Framework: Response to D&Os Regulatory Response Framework Demand Response (DR) Distributed Generation (DG) 2.0 Resource Portfolio Integrated Demand Response Integrated Interconnection Distributed Generation Power Supply Improvement Portfolio Plan (IDRPP) Queue Interconnection Pla

  35. Slide 35: Power Supply Improvement Plans (PSIP)

    Power Supply Improvement Plans (PSIP) Docket No. 2014-0183 (update submitted April 1, 2016)  Vision of how our islands could achieve 100% renewable energy by 2045  April 1, 2016 PSIP highlights:  Achieves 100% renewable energy for Oahu by 2045, Molokai and Lanai by 2030 and Hawaii Island and Maui

  36. Slide 36: Utility Regulatory Model Highlights

    Utility Regulatory Model Highlights Mechanisms Details of Mechanisms Sales decoupling via Predictable revenue stream a revenue balancing • Net revenues fixed at the level approved in the last rate case account • Revenues are no longer linked to KWH sales/electricity usage Rate adjustment Annual esca

  37. Slide 37: 2015 Consolidated Utility ROE Lag

    2015 Consolidated Utility ROE Lag 0.5 0.2 0.4 0.4 9.8 0.3 9.1 8.0 1 2 3 4 5 Allowed ROE Non-recoverable PUC D&O ROE less Plant Adds PUC May 2015 No return on Actual items (ie. lowered interest and Over Decoupling Order pension assets 2015 ROE 1 2 incentive rate on RAM Cap treatment of above the comp

  38. Slide 38: Components of Decoupling

    Components of Decoupling (Hawaii PUC Docket number: 2008-0274) (Hawaii PUC Docket number 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  Rec

  39. Slide 39: Components of Decoupling

    Components of Decoupling (Hawaii PUC Docket number: 2008-0274) (Hawaii PUC Docket number 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 Allowed Order No. 32735* –or- (Order No. 32735) 

  40. Slide 40: Components of Decoupling

    Components of Decoupling (Hawaii PUC Docket number: 2008-0274) (Hawaii PUC Docket number 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 Determined certain items incl

  41. Slide 41: Components of Decoupling

    Components of Decoupling (Hawaii PUC Docket number: 2008-0274) (Hawaii PUC Docket number for the Decoupling Review: 2013-0141) Components 2b. RAM Revenue Cumulative RAM for 2016 RAM Revenue Adjustment – Adjustment  Prior year RAM Cap Target Revenues times GDPPI (1.5% for 2016) + prior year Cap RAM

  42. Slide 42: Hawai'i Electric Light Rate Case: 2016 Test Year

    Hawai‘i Electric Light Rate Case: 2016 Test Year (Hawaii PUC Docket number: 2015-0170) Application (9/19/16) $19.3M Amount requested (6.5% increase over revenues at current effective rates) 1 Deprec. & amort. Expenses $37.8M 10.60% Return on average common with mechanisms equity Common equity capita

  43. Slide 43: Hawai'i Electric Light Rate Case: 2010 Test Year

    Hawai‘i Electric Light Rate Case: 2010 Test Year (Hawaii PUC Docket number: 2009-0164) Application Interim D&O Adj Interim D&O3 Final D&O4 (12/9/09) (1/14/11) (1/1/12) (4/9/12) $20.9M1 $6.0M2 $5.2M2 $4.5M2) Amount requested (6% increase) (1.7% increase) (1.5% increase) (1.3% increase) Deprec. & amor

  44. Slide 44: Hawaiian Electric Rate Case: 2011 Test Year

    Hawaiian Electric Rate Case: 2011 Test Year (Hawaii PUC Docket number: 2010-0080) Interim Adjusted Application D&O Interim D&O Final D&O (7/30/10) (7/26/11) (5/21/12) (9/1/12) Base Request $74M $53.2M2 $58.8M2,3 $58.1M4 (4.3% increase) (3.1% increase) (3.4% increase) (3.4% increase) $40M New Program

  45. Slide 45: Maui Electric Rate Case: 2012 Test Year

    Maui Electric Rate Case: 2012 Test Year (Hawaii PUC Docket number: 2011-0092) Application Interim D&O Final D&O (7/22/11) (6/1/12) ( 8/1/13) Base Request $27.5M1 $13.1M3 $5.3M4 (6.7% increase) (3.2% increase) (1.3% increase) $19.8M $19.7M $19.7M Depr. & amort. expenses Without Mechanism With Mechani

  46. Slide 46: ASB Peer Group – 2016

    ASB Peer Group – 2016 * 1st Source Corporation SRCE Heritage Financial Corporation HFWA Ameris Bancorp ABCB HomeStreet, Inc. HMST BancFirst Corporation BANF Independent Bank Corp. INDB * BBCN Bancorp, Inc. BBCN Independent Bank Group, Inc. IBTX Berkshire Hills Bancorp, Inc. BHLB Lakeland Bancorp, In

  47. Slide 47: Low Risk Loan Mix

    Low Risk Loan Mix  Maintaining targeted loan mix to improve interest rate risk  Overall asset quality remains strong (Nonperforming assets to total loans and real estate owned of 1.12%) September 30, 2016 Commercial Construction $141 Commercial 3% Residential 1-4 real estate $2,055 $774 44% 16% HE

  48. Slide 48: Outlook for Continued Improvement in Hawaii's Economy

    Outlook for Continued Improvement in Hawaii’s Economy Year-over-year percent change unless noted 2015 2016 2017 Real state GDP 3.3 2.0 2.4 Real personal income 3.6 2.2 1.7 Unemployment (%) 3.6 3.1 3.0 Non-farm payroll jobs 1.7 1.4 0.8 Visitor arrivals 4.5 2.3 1.5 Source: University of Hawaii Economi

  49. Slide 49: YTD Hawaii Visitor Arrivals up 2.6% and Visitor Expenditures up 3.7%

    YTD Hawaii Visitor Arrivals up 2.6% and Visitor Expenditures up 3.7% 1400 30.00% Visitor arrivals (in thousands) Year vs. Year % Change Year vs. Year % Change 1200 15.00% 1000 0.00% Monthly Visitor Arrivals 800 -15.00% 600 -30.00% 400 -45.00% Sep-13 Sep-14 Sep-15 Sep-16 Yr-Yr% Change Visitor Arrival

  50. Slide 50: Hawaii Unemployment Rate Remains Low at 3.3%

    Hawaii Unemployment Rate Remains Low at 3.3% 12 Seasonally adjusted 8 US: 5.0% 4 Hawaii: 3.3% 0 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Hawaii U.S. 12 Not seasonally Not adjusted seasonally adjusted 8 Hawaii County: 3.7% Kauai County: 3.3% 4 Maui County: 3.3% Hon

  51. Slide 51: Hawaii Real Estate

    Hawaii Real Estate Oahu Number of Sales and Median Sales Price Sep 2009 – Sep 2016 $800,000 400 $600,000 300 Number of sales Median price $400,000 200 $200,000 100 $0 0 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Number of Sales Median Sales Price Median Sales Price Oahu, Maui, Hawaii, K

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