Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Investor Presentation (May 2022)
54 slides from Hawaiian Electric Industries's investor presentation, May 2022
Slide 1: Investor Presentation
Investor Presentation May 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: At Inflection Point – Driven by Clean Energy Transition
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 4: HEI – Leading in Hawaii
AT A G L A N C E HEI – Leading in Hawaii 1Q22 Earnings Contribution1 Key Facts Utility Bank Publicly traded company in Hawaii3 #1 Market capitalization4 $4.4B 66% 34% Dividend yield4 3.4% Percent of population served with electricity 95% Utility carbon reduction goal by 20305 70% Bank assets $9.2B S
Slide 5: Uniquely Positioned – Growth Potential Under New Utility Regulatory Framework
Uniquely Positioned – Growth Potential Under New Utility Regulatory Framework, Combined With Stable Bank Cash Flow Growth Potential Under New High Quality Bank Provides Utility Regulatory Framework Stable Cash Flow Opportunity for steady earnings growth + Low risk profile, strong credit quality and
Slide 6: Aligned with the Success of Hawaii in a Virtuous Cycle
Aligned with the Success of Hawaii in a Virtuous Cycle Aligned with Hawaii’s Engage with communities, 1 culture of sustainability 2 employees and regulators Success – tied to a 5 thriving Hawaii 3 Set ambitious goals Execute and deliver results 4 for all stakeholders 6
Slide 7: ESG is Deeply Embedded in Our Core Strategies
ESG is Deeply Embedded in Our Core Strategies Core Focus • Leading decarbonization and • Full-service community bank • Sustainable infrastructure clean energy transition with providing superior customer investment focus on affordability, reliability, experience and advancing resilience and equity ec
Slide 8: Stable Long-term Performance Record and Trajectory
Stable Long-term Performance Record and Trajectory Net Income ($M) Positive Dynamics $246 Electric Utility $202 $218 $198 $165 New utility regulatory environment Investment in clean, resilient grid 2017 2018 2019 2020 1 20212 Bank ROE (%) Recovering economy and improving banking 9.8% 10.4% environme
Slide 9: At Inflection Point – Driven by Clean Energy Transition
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 10: Together with State, First Mover in Setting Clean Energy Goals
Together with State, First Mover in Setting Clean Energy Goals 2018 First state to set carbon neutral 2015 economy target First state to set goal of 100% By 2045 2008 electricity sales from renewables Goal of 40% of By 2045 electricity sales from renewables 10
Slide 11: Executing Strong Climate Change Action Plan
Executing Strong Climate Change Action Plan 1 2 3 Carbon Emission Carbon Renewable Portfolio Reductions by 2030 Emissions by Standard (RPS) (vs. 2005)1 20451 by 20452 Net 70% ZERO 100% or better 1. Based on greenhouse gases in stack emissions from utility and independent power producer-owned electri
Slide 12: On Track to Meet or Exceed Our Goals
On Track to Meet or Exceed Our Goals Carbon Emission Reduction1 (vs 2005) Renewable Portfolio Standard (RPS) 2005 Emission Level 40% 2030 Goal -12% 38% -22%2 35% 30% 2020 Goal 23% 15% 2015 Goal -70% 2019 2022 2030 2015 2020 2021 1. Certain near-term projects and completion dates have been impacted b
Slide 13: Key Initiatives Underway to Achieve Our 2030 Goal
Key Initiatives Underway to Achieve Our 2030 Goal Initiatives On Track • Ending coal use in Hawaii in 2022 with expiration of coal plant contract • Retiring and reducing use of fossil fuel generation units • Adding 1 GW of renewable generation capacity • Growing rooftop solar by 55% • Increasing gri
Slide 14: Switch to Renewable Energy Expected to Lower and Stabilize Customer Rates
Unique Position – Switch to Renewable Energy Expected to Lower and Stabilize Customer Rates Energy Cost as of 4/2022 ($/kWh) Utility Fossil Fuel 2016+ PPAs Contracted Renewable Energy Cost Energy Cost (Proposed and Approved) $0.30 $0.20 $0.18 to $0.19 Fossil Fuel Cost $0.10 $0.12 to $0.16 $0.08 to $
Slide 15: At Inflection Point – Driven by Clean Energy Transition
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 16: PBR Framework Presents New Opportunities
PBR Framework Presents New Opportunities 2019 – 2021 June 1, 2021 Future Intensive Dialogue Launched New PBR Continuing with Stakeholders Framework Refinement • Utility priorities • Potential for greater: • Evaluating new aligned with needs of: − stability incentives Potential – public policy − flex
Slide 17: Earnings Primarily Driven by Main Sources Under PBR
Earnings Primarily Driven by 3 Main Sources Under PBR Incremental earnings opportunities under PBR Illustrative PIMs Earnings Total Incremental ARA Separate Recovery Incremental Earnings Earnings • Incentive mechanisms Under PBR • Exceptional Project Recovery Mechanism (EPRM) • ARA spending below in
Slide 18: New Performance Incentive Mechanisms Provide Potential Upside
New Performance Incentive Mechanisms Provide Potential Upside Metric Opportunity Interconnection approval PIM -$0.9M to +$3.0M Grid services procurement PIM +$1.5M over 2 years Pre-PBR PIMs LMI1 energy efficiency PIM +$2M annually Minimal ‘22, up to Already in place RPS-A PIM2 (upside and downside $
Slide 19: At Inflection Point – Driven by Clean Energy Transition
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 20: High Quality Bank: Low-risk Profile, Strong Balance Sheet & Low-cost Funding
High Quality Bank: Low-risk Profile, Strong Balance Sheet & Low-cost Funding Full service Quality Low-risk Asset sensitive Best-in-class community balance Sheet loan portfolio balance sheet cost of funds bank 100% ~$9B of loans funded by low-cost core deposits 84% ~$1.8M ~5bps 1 total assets of loan
Slide 21: Strong Cash Flow Generation
Strong Cash Flow Generation Bank Dividends to HEI ($M) ~$70 $59 $56 $50 $36 $38 1 $30 $31 2015 2016 2017 2018 2019 2020 2021 2022E 1. Lower dividend in 2020 due to pandemic uncertainty. 21
Slide 22: Anytime, Anywhere Banking Transformation Underway
Anytime, Anywhere Banking Transformation Underway Optimizing Branch Network Customers Embracing Digital Investing for Growth 22% reduction in branches % of Total Deposit Transactions since 2019 Technology ~50% 4 branches converted to digital centers Data analytics Training / upskilling: 18% everyone
Slide 23: Clear Priorities to Drive Continued Steady Growth in Bank Earnings
Clear Priorities to Drive Continued Steady Growth in Bank Earnings 1 2 3 4 5 Long-Term Meet customer Optimize Attract and Profitable Invest in branch network Drive ESG expectations + technology + and operating + retain diverse + progress Growth in a digital world talent model S U S T A I N A B I L I
Slide 24: At Inflection Point – Driven by Clean Energy Transition
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 25: Positive Near-term Factors Set Stage for Sustained Long-Term Growth
Positive Near-term Factors Set Stage for Sustained Long-Term Growth • Progress on utility climate goals • Progress digital transformation while prudently • Optimize O&M and capex within ARA controlling costs • Earn additional revenues for separately- • Grow loan portfolio, particularly commercial re
Slide 26: Capex Set to Grow, Driven by Renewables and Reliability
Capex Set to Grow, Driven by Renewables and Reliability Capital Expenditures Forecast ($ Millions) $380-$450 $320-$450 $350-$400 Pending PUC Approval Separate Recovery $302 Approved Expect to invest ≥$2B over next ARA 5 years Approved Recovery 2021A 2022E 2023E 2024E Note: Capital expenditure figure
Slide 27: 2022 EPS Guidance – Utility Strength and Bank Earnings
2022 EPS Guidance1 – Utility Strength and Bank Earnings Reset Provide Base for Future Growth $1.68-$1.78 Key Assumptions: $2.00-$2.20 ➢ Full recovery of COVID-19 expenses $0.59-$0.68 Key Assumptions: Additional Assumptions: ➢ Capex of $350-$400M ➢ Holdco and other ➢ NIM: 2.70-2.85% segment net loss
Slide 28: At Inflection Point – Driven by Clean Energy Transition
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 29: Appendix
Appendix —_—e
Slide 30: Experienced, Committed Leadership Team
Experienced, Committed Leadership Team New HEI and Hawaiian Electric CEOs effective Jan. 1, 2022 Scott Seu Shelee Kimura Ann Teranishi Greg Hazelton Kurt Murao HEI Hawaiian Electric American Savings Bank HEI HEI President & CEO President & CEO, eff. 1/1/22) President & CEO EVP & Chief Financial Offi
Slide 31: Strengthening Hawaii Economy
Strengthening Hawaii Economy Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals Visitor Arrivals Unemployment Rate 2019 2021 2022 12,000 14 Mar. 2022 YTD: 2.0M Mar. 2022: 4.1% 12 1,000,000 10,000 10 800,000 8,000 8 6,000 600,000 6 4,000 400,000 4 2,000 2 200,000 - 0 0 January February Mar
Slide 32: HEI Financing Outlook 2022
HEI Financing Outlook 20221 • Both bank and utility remain net cash 2022 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2022 ~$200M ~$200M • Balance sheet remains investment grade HC Expense Debt Issuance ~$5 ~$30 • Two investment gr
Slide 33: 1Q22 Financial Performance
1Q22 Financial Performance Net Income ($M) EPS (GAAP) Consolidated LTM ROE 10.9% $64.4 $69.2 $0.59 10.0% $0.63 $29.6 $23.9 $0.27 $0.22 $43.4 $46.4 $0.40 $0.42 ($1.1) ($0.01) 2021 2022 ($8.6) ($0.08) Utility 9.0% 8.1% 1Q21 1Q22 1Q21 1Q22 Bank1 10.1% 14.4% Utility Bank Holding Co. & Other Note: Column
Slide 34: 1Q22 Financial Highlights
1Q22 Financial Highlights $0.01 $0.01 $0.01 $0.01 $0.03 $0.06 $0.07 $0.07 $0.03 $0.63 $0.59 Total: ~($0.05) Total: ~$0.02 1 2 1Q 2021 Net interest Provision Noninterest ARA and MPIR Monthly Generation Depreciation O&M Holdco and 1Q 2022 income income and revenue heat other noninterest allocation rat
Slide 35: Utility Outlook Drivers
Utility Outlook Drivers Heat Rate Performance O&M Expense Management PIM Rewards Improvement / Fuel Costs Increases • Higher 1Q22 O&M expenses • Supply chain disruptions impacting • If fuel prices remain high, could driven by: timelines of contracted renewable see full $3.7M pre-tax sharing projects
Slide 36: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment Capital Expenditures Forecast ($ in millions) $380-$450 $320-$450 $350-$400 Pending Approval Separate $302 Approved Recovery Low range includes baseline ARA capital and approved separately recovered projects. Approved ARA High range inc
Slide 37: Utility LTM ROE
Utility LTM ROE ROE (%) 9.5% 0.4% 0.1% 0.1% 8.9% 0.6% 0.2% 8.1% 1 2 3 4 5 Allowed Non-recoverable Transition to PBR Monthly ROE less Actual O&M, Others, Actual 1Q22 ROE items (i.e., Incentive - Impact of 2021 revenue Structural depreciation and net Core ROE compensation, ARA effective allocation Ite
Slide 38: PBR Framework – A Closer Look
PBR Framework – A Closer Look Mechanism Before – Pre PBR After – Post PBR Term of rate plan 3 years 5 years Cost trackers In place Remain in place Slight modification – Revenue Adjustment allowance tied to inflation with In place Mechanism (RAM) adjustments for customer dividend and other factors Ex
Slide 39: Performance Incentive Mechanisms (PIMs) Incentivize Achievement of Key Outcomes
Performance Incentive Mechanisms (PIMs) Incentivize Achievement of Key Outcomes Maximum PIM Rewards / (Penalties) in $M – Annual unless otherwise specified Existing PIMs (pre-PBR) PBR-established PIMs $6.0 $5.0 See next $4.0 $3.0 page for $3.0 RPS-A PIM $2.0 $3.7 $3.5 $1.5 TBD $2.0-3.0 $1.0 $2.0 $2.
Slide 40: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2021 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2022-2024) $10 $8 $7 - $9 RPS-A PIM potential grows $6 as more renewable energy $3 - $6.5 projects come online $4 • Projects approved or pending $2 approval have potential to $0 -$0
Slide 41: Fossil Fuel Cost Risk Sharing
Fossil Fuel Cost Risk Sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 42: Efficiency Improvements Position Utility to Perform Under PBR
Efficiency Improvements Position Utility to Perform Under PBR Adjusted O&M - Excluding Pension (non-GAAP)1 ($M) $422M $414M $412M 2019 2020 2021 1. Also excludes O&M expenses covered by surcharges or billed to third parties. Reference GAAP to non-GAAP reconciliation on following page. 42
Slide 43: GAAP to non-GAAP Reconciliation
GAAP to non-GAAP Reconciliation O&M GAAP to Non-GAAP reconciliation of O&M, net of exclusions ($ in millions) 2019 2020 2021 2022 YTD Total O&M Expense (GAAP) $482 $474 $475 $125 Exclude: Pension expense covered by rates1 $54 $53 $50 $12 O&M expenses covered by surcharges $1 $3 $6 $2 Activities bill
Slide 44: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 Evidentiary hearing on potential additional PIMs held Apr. 26-27. Post-hearing brief and post-hearing reply brief due in May. Proceeding to evolve regulatory framework
Slide 45: Encouraging Rooftop PV, Customer-Sited Resources
Encouraging Rooftop PV, Customer-Sited Resources Providing programs and infrastructure to integrate and incentivize DER #1 Investor-Owned Cumulative Residential PV Installations (in megawatts) Utility in Rooftop Solar Penetration Net Energy Metering New DER Programs 7% 21% CAGR 517.8 483.0 441.6 of
Slide 46: Bank Outlook Drivers
Bank Outlook Drivers Stronger Interest Rate Outlook Slowing PPP Fee Income Economic Outlook • Larger and faster rate increases vs • PPP loan fees continue declining • Improving Hawaii economic original assumptions as loans are forgiven, offsetting outlook as COVID-19 recovery near-term rising intere
Slide 47: Net Interest Income Grew with Earning Assets Growth, Stable Margin
Net Interest Income Grew with Earning Assets Growth, Stable Margin Yield on Earning Assets (%) Cost of Funds (%) Net Interest Margin (%) 3.03 2.84 2.83 2.95 2.79 2.79 0.08 0.05 0.05 1Q21 4Q21 1Q22 1Q21 4Q21 1Q22 1Q21 4Q21 1Q22 Actual PPP Ex. PPP 4Q21 Reported NIM 2.79% 12.90% 2.68% Increasing invest
Slide 48: Allowance for Credit Losses Reflects Favorable Credit Trends
Allowance for Credit Losses Reflects Favorable Credit Trends ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) $80 ACL: 1.36% $71.1 $0.1 ACL: 1.30% $3.8 $70 $67.2 $60 $50 ACL - 12/31/21 1Q NCOs 1Q Provision for Credit Losses ACL - 3/31/22 4Q21 1Q22 Beginning ACL balance $75.9 $71.1 Quarterly provis
Slide 49: ASB's Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment
ASB’s Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment Adjustment rate assets ($ in millions) ~$1,170 Timing of repricing following rate increase • Base case forecast for 2022 assumed four Fed rate Consumer: $13 increases; guidance range accommodates further >3 months -- in
Slide 50: Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans
Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans Loan portfolio characteristics Commercial & National Industrial Commercial 9.3% Syndications 4.4% ✓ ~84% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 58% Construction Person
Slide 51: Quality Bank Balance Sheet and Loan Portfolio
Quality Bank Balance Sheet and Loan Portfolio ASB1 Investment Portfolio Investment Portfolio Average yield on earning assets 2.83% Sectors Ratings Average cost of funds 0.05% Return on avg. equity2 14.4%/13.7% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 55% 100% of ASB
Slide 52: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M) $4,563 $4,634 ASB has more than $234M of excess equity $4,026 above the “well capitalized” level Capital Ratio Tier 1 leverage $2,493 $2,548 $1,982 As of 3/31/22 7.83% “Well capitalized” 5.00% $2,011 $2,049 $2,069 Minimum requir
Slide 53: 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 driver of value (ESG) Renewable Transportation Power Electrification Contracted cashflows Climate adaptation Attractive after-tax and resilience unlever
Slide 54: Pacific Current – Initial Projects Advancing Hawaii's Sustainability
Pacific Current – Initial Projects Advancing Hawaii’s Sustainability • Focused on local partnerships and projects consistent with investment grade profile • Long-term strategy, with modest earnings impact while building Hawaii-based portfolio Mauō LLC - University of Hawaii Community Colleges 60MW H
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