Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q4 2016 Earnings Presentation
53 slides from Hawaiian Electric Industries's earnings presentation, Feb 14, 2017
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
Slide 2: Forward-Looking Statements (continued)
• the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid; • the growing risk that energy pro
Slide 3: 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
Slide 4: Reconciliation of GAAP to Non-GAAP Measures – Hawaiian Electric Company
RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES Hawaiian Electric Company, Inc. and Subsidiaries Unaudited Three months ended December 31 Years ended December 31 ($ in millions) 2016 2015 2016 2015 HAWAIIAN ELECTRIC CONSOLIDATED COSTS RELATED TO THE TERMINATED MERGER WITH NEXTERA ENERGY Pre-tax expense
Slide 5: 2016 Fourth Quarter and Year-end Financial Results and Outlook
Hawaiian Electric Industries, Inc. 2016 Fourth Quarter and Year-end Financial Results and Outlook February 14, 2017
Slide 6: 2016 Highlights
2016 Highlights 2016 financial results in line with revised earnings guidance Filed comprehensive Excellent deposit growth update to Power Supply and higher net interest Improvement Plans income Focused on providing Strong efficiency increased customer value improvements at a reasonable co
Slide 7: Committed to Achieve Hawaii's 100% Renewable Energy Goal by 2045
Committed to Achieve Hawaii’s 100% Renewable Energy Goal by 2045 National leader in clean energy Hawaiian Electric achieved 25%1 integration RPS in 2016 At times, renewable energy Oahu: 19% has powered up to ~45% Maui County: 36% of Oahu energy needs and Hawaii Island: 53% up to ~60% on
Slide 8: Utility Developments since 3Q16
Utility Developments since 3Q16 Includes 5-year plan charting near-term actions Power Supply Plan to reach 48% renewable by 2020 Improvement Plan Maintains flexibility to allow for technological (PSIP) Update advances and changing customer needs (Docket No. 2014-0183) Statement of position t
Slide 9: Hawaii Economic Trends
Hawaii Economic Trends Dec YTD Dec Year-over-year change 2016 2016 Tourism Arrivals +3.6% +3.0% Expenditures +5.1% +4.2% Unemployment Dec 2016 – Hawaii: 2.9%; U.S.: 4.7% YTD Dec 2016 Oahu single family home sales Real Estate up 5.0% Oahu median single family home price for Dec 2016 up 4.3% fro
Slide 10: Consolidated 2016 Earnings – Net Income
Consolidated 2016 Earnings – Net Income (in millions) GAAP Net Income Non-Core Adjustments Core Net Income $248.3 $190.1 (merger/spin-related) $175.7 $159.9 $58.2 $142.3 $144.5 $136.2 $135.7 $60.3 $57.3 $54.7 $48.7 $54.8 $57.3 ($15.8) ($30.6) ($15.4) ($11.7)* ($2.1) ($15.2) 2015 2016 2015 2016 2015
Slide 11: Consolidated 2016 Earnings - EPS
Consolidated 2016 Earnings - EPS GAAP EPS (Diluted) Non-Core Adjustments Per Core EPS (Diluted) Share (Diluted) $2.29 (merger/spin-related) $1.75 $1.65 $1.50 $1.31 $1.33 $1.28 $0.54 $1.27 $0.53 $0.56 $0.51 $0.45 $0.51 $0.53 ($0.29) ($0.15) ($0.14) ($0.11)* ($0.02) 2015 2016 2015 2016 2015 2016 Utili
Slide 12: Consolidated 4Q Earnings – Net Income
Consolidated 4Q Earnings – Net Income (in millions) GAAP Net Income Non-Core Adjustments Core Net Income (merger/spin-related) $44.6 $44.6 $42.3 $44.5 $33.0 $34.1 $33.2 $34.1 $15.0 $16.2 $16.2 $15.1 ($2.2) ($1.9) ($5.6) ($5.7) NIL ($3.8) ($5.7)* ($30.6) 4Q15 4Q16 4Q15 4Q16 4Q15 4Q16 Utility Bank Hol
Slide 13: Consolidated 4Q Earnings - EPS
Consolidated 4Q Earnings - EPS GAAP EPS (Diluted) Non-Core Adjustments Per Core EPS (Diluted) Share (Diluted) $0.39 $0.41 (merger/spin-related) $0.41 $0.41 $0.31 $0.31 $0.31 $0.31 $0.14 $0.15 $0.14 $0.15 $0.00 NIL ($0.03) ($0.05)* ($0.05) ($0.05) ($0.02) 4Q15 4Q16 4Q15 4Q16 4Q15 4Q16 Utility Bank Ho
Slide 14: HEI ROE
HEI ROE 1 Consolidated ROE Twelve Months Ended December 31 15.0% 12.4% (GAAP) 9.4% (Core) 9.5% (Core) 8.6% (GAAP) 0.0% 2015 2016 Core Earnings Adjustment 2015 2016 GAAP GAAP Utility 8.0% 8.1% Bank 10.0% 10.1% See the reconciliation of GAAP to Non-GAAP (Core) measures preceding this presentation 1 Ca
Slide 15: 2016 Utility & Bank Financial Highlights
2016 Utility & Bank Financial Highlights Utility Core Net Income Key utility core earnings 4Q16 2016 (in millions) $160 drivers fav/(unfav) vs vs ($ in millions after-tax) 4Q15 2015 $140 $120 Net revenues*: Recovery of investments & costs 2 9 $100 Other -- (1) $80 Net revenues 2 8 $136 $144 $60 O&M,
Slide 16: Utility ROE
Utility ROE 1 Consolidated Utility ROE Twelve Months Ended December 31, 10% 5% GAAP GAAP 8.0% 8.1% 0% 2015 2016 Consolidated Hawaiian Hawaii Maui Utility Electric Electric Light Electric 2015 8.0% 8.0% 7.2% 8.5% 2016 8.1% 8.3% 7.3% 8.1% 2 Allowed 9.8% 10.0% 10.0% 9.0% 1 Calculated using net income d
Slide 17: Bank 2016 Performance
Bank 2016 Performance Return on Assets (%) Loan Growth (%) 1.19 12.2 12.1 1.02 1.03 ~0.90 0.92 mid- single digit 2.6 0.3 Target ASB ASB Peers YTD Target ASB ASB Peers YTD 4Q16 2016 4Q16 2016 Net Interest Margin (%) Net Charge-offs (%) 0.40 3.59 3.59 3.49 3.48 ~3.5-3.6 0.24 ~0.15 to 0.20 0.10 0.10 Ta
Slide 18: 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 3.80 4.00 3.75 3.50 3.25 3.00 3.50 4Q15 1Q16 2Q16 3Q16 4Q16 0.60 Liability Cost % 3.62 3.58 3.57 3.59 3.55 0.40 3.00 0.23 0.23 0.24 0.22 0.22 4Q15 1Q16 2Q16 3Q16 4Q16 0.20 0.00 4Q15 1Q16 2Q16 3Q16 4Q16 1
Slide 19: Pretax Noninterest Income
Pretax Noninterest Income (in millions) Quarter Annual $30.0 $67.8 $67.0 $70.0 Fees from other financial services Fee income on deposit liabilities Fee income on other financial products $60.0 Mortgage banking income $22.2 $22.4 Gains on sale of securities Other Income $50.0 $20.0 $18.5 $16.8 $16.6
Slide 20: Credit quality
Credit quality Quarter Annual (in millions) $21.0 0.50% $16.8 0.40% $16.0 0.40% 0.30% $11.3 $11.0 0.21% 0.20% 0.20% 0.15% $6.3 $6.0 $5.7 0.10% $4.8 $4.8 $4.7 $1.9 $2.5 $1.8 $2.3 $1.5 $1.0 0.00% $0.8 ($0.9) -0.08% NCO 0.04% 0.24% -0.10% ($4.0) 4Q15 1Q16 2Q16 3Q16 4Q16 2015 2016 1 2 Provision For Loan
Slide 21: Nonaccrual Loans
Nonaccrual Loans Percentages Dollars in millions 1.75% $60.0 $52.6 1.50% $50.0 $48.3 $46.9 $46.0 1.25% 1.11% $40.0 1.01% 1.02% 1.00% 1.00% $30.0 0.75% $23.3 $20.0 0.49% 0.50% $10.0 0.25% 0.00% $0.0 4Q15 1Q16 2Q16 3Q16 4Q16 4Q15 1Q16 2Q16 3Q16 4Q16 1 2 ASB Loans Peers High Performing Peers Source for
Slide 22: Quality Balance Sheet
Quality Balance Sheet Overall loan-to-deposit ratio of 85% 100% of ASB loans funded with low-cost core deposits Peer Banks1 ASB 9/30/16 (%) 12/31/16 (%) Core Deposits Loans 61 Loans Core 72 73 Deposits 76 Certificates of Deposit 17 Investment Investment Securities Certificates of Other Securitie
Slide 23: Clean Energy & Reliability Projects Drive Capital Investments
Clean Energy & Reliability Projects Drive Capital Investments Year End Rate Base Forecast ($ in millions) = Top of Range $3,500 = Bottom of Range $3,300 $3,250 $3,150 $3,200 $2,980 $3,000 $3,070 $2,920 $2,750 $2,830 $2,500 2016 2017 2018 2019 Rate Base Growth 3% 3-5% 5-7% 3-6% 2 Capex (net of CIAC)
Slide 24: HEI Capital Structure and Financing Outlook
HEI Capital Structure and Financing Outlook (in millions) 2017 Holding Co. Sources & Uses* $400 ~$355M ~$355M $350 HC int, exp & other $15 Expect to maintain strong capital structure above $300 50% consolidated Debt common equity to total Maturities capitalization in 2017 $125 $250 Debt $235 HEI
Slide 25: 2017 EPS Guidance
2017 EPS Guidance HEI EPS: $1.55 – $1.70 per share No new equity issuances including DRIP through 2018 Utility EPS: $1.17 – $1.27 Bank: $0.53 – $0.56 Key Assumptions: Key Assumptions: Decoupling model: March 2015 D&O Net interest income: lower mid-single 2013 Settlement Agreement expiration
Slide 26: 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
Slide 27: Hawaiian Electric Industries, Inc.
Hawaiian Electric Industries, Inc.
Slide 28: Appendix
Appendix 24
Slide 29: 2016 Consolidated Utility ROE Lag
2016 Consolidated Utility ROE Lag 0.2 0.2 0.1 0.4 0.7 9.8 9.3 0.2 0.5 0.2 8.1 1 2 3 4 5 6 7 8 Allowed ROE Non-recoverable Short term RAM Revenue ROE less Plant Adds O&M in excess of No return on Interest rate Others, net Actual items (ie. interest accrual delay items 1, 2, 3 Over test year+RAM pensi
Slide 30: Oil is the Primary Driver of Rates in Hawaii
Oil is the Primary Driver of Rates in Hawaii Breakdown of Hawaiian Electric Rates 1 Typical Residential 40 Bill December 2012 $163.64 35 Typical 31.8 Typical Residential 30.9 31.5 Bill Residential Bill January 29.1 30 December 2017 Typical 2016 $135.39 Residential $132.32 Bill 25.0 12.1 24.3 25 Dece
Slide 31: Stabilizing Customer Bills By Addressing Every Part of the Bill
Stabilizing Customer Bills By Addressing Every Part of the Bill 25.0 1 22.0 Increase plant efficiency Increase “ramp” and “turndown rates” Provide less back-up 20.0 Demand response programs Fuel, 4.6 (21%) Substitute lower cost fuel and renewables (e.g., LNG) Deactivate older generating units Purcha
Slide 32: 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 (2012-2016) historical average baseline projects: (in millions) $500 HE: $229 HL: 48 ME: 42 $450 Total $319 $390 $400 $371 $350 $21 $350 $33 $26 $55 $50 $299 $300 $48 $2 $283 $59 $28
Slide 33: Renewable Energy Can Be Cost Competitive in Hawaii Depending on Oil Price Volatility
Renewable Energy Can Be Cost Competitive in Hawaii Depending on Oil Price Volatility 0.40 Energy costs subject to volatile oil Renewables: long-term fixed price prices contracts with predetermined escalators 0.35 0.30 Solar Energy Cost ($/kWh) 0.25 December 2014 Wind 0.20 0.15 December 2010 December
Slide 34: Hawaii's Oil Situation
Hawaii’s Oil Situation Low Sulfur Fuel Oil vs. Crude Oil Price per BBL December 2010 to December 2016 $145 $125 HAWAII OIL PRICES $105 $85 $65 $45 CRUDE OIL PRICES $25 Hawaii oil prices based on Hawaiian Electric low sulfur fuel oil inventory prices Crude oil prices based on West Texas Intermediate
Slide 35: Rate Case Schedule
Rate Case Schedule 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 Filed 12/16/16 Maui Electric 2018 Test Year Rate Case to be fi
Slide 36: Power Supply Improvement Plan (PSIP) Update
Power Supply Improvement Plan (PSIP) Update Docket No. 2014-0183 (update submitted December 23, 2016) Accelerates achievement of key milestones, including reaching 48% renewable by 2020; mandated goal is 30% Describes greater and faster expansion of companies’ renewable energy portfolio than in
Slide 37: 2017 Oahu Energy Snapshot
Hawaiian 2017 Oahu Energy Snapshot: Electric Growing the renewable energy portfolio Companies 2017 Distributed Generation: 308 MW 2020 ESTIMATED RENEWABLE PORTFOLIO STANDARD (RPS) 48% This map shows existing and planned generating facilities in our service area and the maximum potential power in meg
Slide 38: 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
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 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
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 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)
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 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
Slide 42: 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
Slide 43: Hawaiian Electric Company Rate Case: 2017 Test Year
Hawaiian Electric Company Rate Case: 2017 Test Year (Hawaii PUC Docket number: 2016-0328) Application (12/16/16) $106.4M Amount requested (6.9% increase over revenues at current effective rates) 1 Deprec. & amort. expenses $130.7M Return on average common 10.60% equity with mechanisms Common equity
Slide 44: Hawaii Electric Light Rate Case: 2016 Test Year
Hawaii 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 Return on average common 10.60% equity with mechanisms Common equity capital
Slide 45: 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
Slide 46: Hawaii Electric Light Rate Case: 2010 Test Year
Hawaii 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. & amort
Slide 47: 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
Slide 48: 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
Slide 49: Low Risk Loan Mix
Low Risk Loan Mix Maintaining targeted loan mix to improve interest rate risk Overall asset quality remains strong (Nonaccrual loans to total loans of 0.49%) December 31, 2016 Commercial Construction $127 Commercial Residential 1-4 3% real estate $2,048 $801 43% 17% HELOC $863 18% Consumer $178
Slide 50: Outlook for Continued Improvement in Hawaii's Economy
Outlook for Continued Improvement in Hawaii’s Economy Year-over-year percent change unless noted 2016 2017 2018 Real state GDP 2.3 2.1 1.9 Real personal income 2.4 2.2 2.0 Unemployment (%) 3.3 3.2 3.2 Non-farm payroll jobs 1.6 1.1 0.9 Visitor arrivals 3.0 2.4 1.4 Source: University of Hawaii Economi
Slide 51: YTD Hawaii Visitor Arrivals up 3.0% and Visitor Expenditures up 4.2%
YTD Hawaii Visitor Arrivals up 3.0% and Visitor Expenditures up 4.2% 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% Dec-13 Dec-14 Dec-15 Dec-16 Yr-Yr% Change Visitor Arrival
Slide 52: Hawaii Unemployment Rate Remains Low at 2.9%
Hawaii Unemployment Rate Remains Low at 2.9% 12 Seasonally adjusted 8 US: 4.7% 4 Hawaii: 2.9% 0 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Hawaii U.S. 12 Not seasonally Not adjusted seasonally adjusted 8 Hawaii County: 3.1% Kauai County: 2.8% 4 Maui County: 2.7% Hon
Slide 53: Hawaii Real Estate
Hawaii Real Estate Oahu Number of Sales and Median Sales Price Dec 2009 – Dec 2016 $800,000 400 $600,000 300 Number of sales Median price $400,000 200 $200,000 100 $0 0 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Number of Sales Median Sales Price Median Sales Price Oahu, Maui, Hawaii, K
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