Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Siebert Williams Shank Virtual West Coast Utilities Conference 2022
49 slides from Hawaiian Electric Industries's conference presentation, Mar 16, 2022
Slide 1: Hawaiian Electric Industries, Inc.
Hawaiian Electric Industries, Inc. Siebert Williams Shank Virtual West Coast Utilities Conference March 16, 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 ~3,600 64% (Utility) Full time employees3 8.3% Hawaii- $4.5B 3.4% 36% (Bank) 5-year total return ~2,500 (Utility) f
Slide 6: 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 7: Advancing Hawaii’s decarbonization
HAWAIIAN ELECTRIC Advancing Hawaii’s decarbonization
Slide 8: Hawaiian Electric climate change action plan
Hawaiian Electric climate change action plan: A vision for 2030 and 2045 Achieved 38% RPS in 2021 Adopted new carbon reduction goals: 70% carbon emissions1 reduction by 2030 (vs 2005) Net-zero (or better) carbon emissions by 2045 Committed to set science-based targets Key steps in our 2030
Slide 9: Oil price volatility impacts customer rates
Oil price volatility impacts customer rates BREAKDOWN OF HAWAIIAN ELECTRIC RATES1 (typical residential bill) ¢/kWh Fuel Purchased Energy Fossil Fuels 40 Mar 20223 Revenue Taxes $184.44 Purchased Energy Renewables 34.3 2 PPAC Expenses 31.8 31.5 30.9 All Other 29.1 28.7 30 27.4 27.2 25.8 24.3 24.3 13.
Slide 10: Renewable energy key to affordability, bill stability
Renewable energy key to affordability, bill stability UTILITY FOSSIL FUEL ENERGY COST CONTRACTED RENEWABLE ENERGY COST Subject to volatile oil prices Cost-competitive and greater price stability Fuel cost ($/bbl)1 $56-78 $70-90 $100-114 $72-94 $52-60 $99-111 $100-103 0.25 Energy Cost ($/kWh) 2016+ P
Slide 11: 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 12: Earnings primarily driven by 3 main sources under PBR
Earnings primarily driven by 3 main sources under PBR Annual Revenue Performance Incentive 1 Adjustment (ARA) 2 Separate Recovery 3 Mechanisms (PIMs) • Annual inflationary adjustment • Exceptional Project Recovery • PIMs provide incremental (less customer dividend) Mechanism (EPRM), innovative earni
Slide 13: Focused on cost efficiencies
Focused on cost efficiencies Adjusted O&M excluding pension (non-GAAP)1 ($ millions) $422 $414 $412 Original expectation: $409M • Reduction in Adjusted O&M excluding pension (non-GAAP)1 since 2019 • Lower expenses in 2021 2019 2020 2021 despite higher than expected storm costs and O&M GAAP to Non-GA
Slide 14: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST ($ in millions) Low range includes $350-$500 baseline ARA capital $450 $350-$440 $320-$430 and approved $411 separately recovered $335 Separate projects. $302 Recovery High range includes separately recover
Slide 15: Serving and investing in Hawaii’s families, businesses and communities
AMERICAN SAVINGS BANK Serving and investing in Hawaii’s families, businesses and communities
Slide 16: Conservatively managed bank with strong financial position
Conservatively managed bank with strong financial position SERVING HAWAII THROUGH OVER 97 YEARS OF ECONOMIC CYCLES One of Hawaii’s largest financial institutions – full service community bank with over $9 billion1 in assets Track record of maintaining low risk profile, strong credit quality and
Slide 17: 2022 bank net income drivers
2022 bank net income drivers • PPP fee income tapers off as remaining PPP loans are forgiven • Allowance for credit losses reflects anticipated continued economic improvement and reserves for loan growth • Rising interest rate environment expected to benefit net interest margin over time • Efficienc
Slide 18: Bank loan portfolio: Conservative profile, concentrated in real estate-secured loans
Bank loan portfolio: Conservative profile, concentrated in real estate-secured loans ($ in millions) Loan portfolio characteristics 1.9% 1.7% 0.3% 4.8% ~83% of portfolio secured by real estate (84% excl. PPP) * Residential Wtg Avg LTV < 50%; CRE Wtg Avg LTV < 60% 10.4% C&I represent ~10% of tota
Slide 19: 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 Base case forecast for 2022 Adjustment rate assets Timing of repricing assumes four Fed rate ($ in millions) following rate increase increases (guidance range accommodates further ~$1,200 Consumer: $13 increases) ~$
Slide 20: Financial update
Financial update HEI Catalyst for a better Hawai'i ie
Slide 21: Solid 2021 financial performance
Solid 2021 financial performance Net Income Diluted EPS Consolidated LTM ROE ($ in millions) $246.2 $2.25 $197.8 $1.81 10.4% $101.2 $0.92 $57.6 $0.53 Full year $169.3 $177.6 $1.55 $1.62 8.6% ($29.1) ($32.7) ($0.27) ($0.30) $54.5 $0.50 $50.5 $0.46 $15.7 $22.1 $0.14 $0.20 Q4 2020 2021 $43.0 $42.0 $0.3
Slide 22: HEI 2022 EPS guidance
HEI 2022 EPS guidance (as of February 14, 2022) HEI EPS: $2.00 - $2.20 PER SHARE UTILITY EPS: $1.68 - $1.78 BANK EPS: $0.59 - $0.68 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • Full recovery of COVID-19 related expenses • NIM (%) 2.70% – 2.85% • Capex of $350 to $400 million • Provision expense (millions) $0
Slide 23: HEI financing outlook 2022
HEI financing outlook 2022 (as of February 14, 2022) 2022 HOLDING COMPANY SOURCES & USES OF CAPITAL Both bank and utility ($ in millions) remain net cash flow providers to holding ~$200 ~$200 company Debt Issuance, HC Expense, ~$5 ~$30 No external equity HEI Investments required in 2022 in Utility,
Slide 24: Appendix
Appendix HEI Catalyst for a better Hawai'i ie
Slide 25: Hawaii economy strengthened with reopening
Hawaii economy strengthened with reopening Continues to reflect virus trends Unemployment Rate & YTD Visitor Arrivals Daily Arrivals (excludes flights from Canada) (In thousands) YTD visitor arrivals Unemployment rate 2022 2021 2020 2019 10,000 12% 45,000 9,000 Jan. 2022 574K visitor arrivals 40,000
Slide 26: COVID-19 Update
COVID-19 Update • COVID cases declining as Omicron surge wanes • Jan. 2022 tourism arrivals 234% above Jan. 2021 • 77% of Hawaii population fully vaccinated, 38% with boosters • Hawaii’s Safe Travels program restrictions on U.S. transpacific travelers and Hawaii’s indoor mask mandate are set to expi
Slide 27: 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 28: 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 29: ESG reporting: Focused on transparency and increasing maturity
ESG reporting: Focused on transparency and increasing maturity • Published second HEI consolidated ESG report (SASB and TCFD-aligned) in 2021 • Incorporates metrics aligned with SASB and EEI • Includes TCFD narrative/scenario discussions and materiality assessment of priority ESG areas • Executing p
Slide 30: 2021 utility achievements
2021 utility achievements • Delivered $8 million in customer savings Creating • Supported customers in financial need, including through pandemic bill relief customer • Implemented Battery Bonus and Quick Connect programs to accelerate storage value additions and customer resource interconnections o
Slide 31: 2021 utility financial highlights
2021 utility financial highlights ($ in millions) Delivered $8M customer savings and established $2M customer bill credit program Higher revenues: − $9M rate adjustment mechanism (RAM); $7M annual rate adjustment (ARA) mechanism • Partially offset by management audit savings and Maui County and
Slide 32: Utility LTM ROE
Utility LTM ROE 1 2 3 4 Allowed ROE Non-recoverable Transition to PBR ROE less Actual O&M, Others, Actual Q4 2021 items (i.e. Incentive – Impact of 2021 Structural depreciation net Core ROE compensation, ARA effective Items and rate base advertising, June 1, 2021 not recovered charitable contributio
Slide 33: 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 34: PBR framework financial drivers
PBR framework financial drivers 2022 amounts included under PBR Impacts in 2022 – first full year of PBR Eliminate 20 bps of lag from Annual revenue • $22.9M net ARA revenues (net of shift to Jan. 1 ARA accrual adjustment customer dividend and management (ARA) audit savings) Continue to narrow g
Slide 35: 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 $3.0 RPS-A $2.0 $3.7 TBD $3.5 $1.5 PIM $1.0 $1.4 $1.8-$2.0 $2.0 $2.
Slide 36: RPS-A PIM rewards accelerated renewable energy growth
RPS-A PIM rewards accelerated renewable energy growth ($ millions) 2021 Award Estimated ranges for RPS-A PIM $12 (Actual) 2022-24 $10 RPS-A PIM potential $7 - $11 grows as more $8 renewable energy $4 - $10 $6 projects come online $4 • Projects approved or $2 $0 - $4 pending approval have $0.8 potent
Slide 37: 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 38: Status of key open dockets (as of 3/11/22)
Status of key open dockets (as of 3/11/22) Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 Nov. 2021 PUC Order revised procedural schedule for consideration of Responses to supplemental information Proceeding to evolve regulatory framework to
Slide 39: 2021 bank achievements
2021 bank achievements • Accelerated anytime, anywhere banking transition to meet customer needs − ATM re-fleet Delivering for − 4 digital center conversions customers − Expanded online functionality • 52% of customer deposits self service (as of Dec. 2021) • Deployed $551M in Paycheck Protection Pr
Slide 40: 2021 bank financial highlights
2021 bank financial highlights ($ in millions) Net income up 76%, largely due to $25.8 million negative provision for credit losses • Reflects significant improvement in credit quality and economic environment Net interest margin of 2.91%, with record low average funding cost of 6 bps 10.6% de
Slide 41: Net interest income grew with earning asset growth despite margin pressure
Net interest income grew with earning asset growth despite margin pressure YIELD ON EARNING ASSETS (%) PPP ($ in millions) Loans Fees 3.22 2.96 Funded $ / count $551 / 6,300 $23 2.84 Forgiveness / paydowns to date $482 $20 4Q20 3Q21 4Q21 Balance (as of 12/31/21) $69 $3 COST OF FUNDS (%) 0.09 Actual
Slide 42: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong Access to large amounts of secured funding ASB has more than $232M of excess equity above the “well capitalized” level Secured funding available ($ in millions) $4,563 Capital Ratio Tier 1 leverage $3,686 As of 12/31/21 7.86% $2,493 ** “Well capitalized” 5.00
Slide 43: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Corporates Mortgage Revenue Average yield on earning assets 2.84% 1% Bonds Average cost of funds 0.05% 1% Return on avg. equity2 12.10% Government Backed Loans 98% 73% Core 100% of Loans ASB Deposits loans 56% 84% funded
Slide 44: Negative provision reflected favorable credit trends, improved economic environment
Negative provision reflected favorable credit trends, improved economic environment ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) ACL: 1.90% $3.7 $100 $26.4 $101.2 ACL: 1.36% $90 $80 $71.1 $70 $60 $50 ACL - 12/31/20 2021 NCOs 2021 Provision for Credit Losses ACL - 12/31/21 2020 2021 Change Begi
Slide 45: 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 46: 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 47: 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 48: 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 49: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements failure to achieve remaining cost savings commitment related to the management audit committed savings of $33 million over the 2021 to 2025 multi-year rate period (MRP); federal, state, county and international governmental and regulatory acti