Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q2 2019 Earnings Presentation
47 slides from Hawaiian Electric Industries's earnings presentation, Aug 2, 2019
Slide 1: Cautionary Note Regarding Forward-Looking Statements
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report and other presentations 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
Slide 2: Forward-looking statements (continued)
• the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities’ electric systems and as customers reduce their energy usage; • the ability of IP
Slide 3: Second Quarter 2019 Financial Results and Outlook
Hawaiian Electric Industries, Inc. Second Quarter 2019 Financial Results and Outlook August 2, 2019
Slide 4: Q2 2019 consolidated earnings results
Q2 2019 consolidated earnings results Q2 Net Income (GAAP) Q2 EPS (GAAP) ($ in millions) $46.1 $0.42 $42.5 $0.39 2018 2019 2018 2019 2 2
Slide 5: 2019: Transformative year toward achieving state policy goals
2019: Transformative year toward achieving state policy goals PUC Mar 27: PUC May 16: PUC Mar 21: PUC approves 6 PPAs June 26: PUC DECISIONS approves Maui approves electric bus for 247 MW of issues Electric rate case charging pilot for solar and 1GWh schedule for settlement July 8: PUC time-of-use r
Slide 6: Accelerating clean energy transformation with state's largest-ever renewables procurement
Accelerating clean energy transformation with state’s largest-ever renewables procurement • Proposed Stage 2 RFP expands to up to ~900 MW of new renewables and more than 500 GWh of storage across Oahu, Maui & Hawaii Island ‒ Proposed RFP for grid services also filed – 144 MW capacity and 65 MW fast
Slide 7: Performance based regulation (PBR) update
Performance based regulation (PBR) update Phase I Decision & Order released in May The May 23 D&O concluded Phase 1 of PBR and established 3 guiding principles, 3 regulatory goals, and 12 priority outcomes to guide Phase II of the PBR process. The details to be determined in Phase II will drive PBR’
Slide 8: Performance based regulation (PBR) update cont'd
Performance based regulation (PBR) update cont’d PBR Phase II commenced with release of detailed timeline issued in June On June 26, the PUC commenced Phase II and released its timeline for implementing PBR. Phase II will continue the collaborative approach from Phase I, and will include workshops a
Slide 9: Bank performing well despite challenges in Q2
Bank performing well despite challenges in Q2 Earnings decreased in Q2, but $0.79 – margins remain healthy $0.76 $0.851 • YTD net interest margin was strong despite $0.62 a more challenging interest rate environment • Strong loan growth for the quarter reflects emphasis on customer relationships ~$6
Slide 10: Hawaii economy remains healthy
Hawaii economy remains healthy While pace moderates, growth continues June 2019 vs June YTD 2019 vs YTD 2018 2018 Total arrivals +6.1% +4.2% Tourism Total expenditures +2.8% -2.0% Unemployment • June 2019 – Hawaii: 2.8%; U.S.: 3.7% • YTD June 2019 Oahu sales volume vs PY: – Single family homes, down
Slide 11: Solid Q2 2019 financial performance
Solid Q2 2019 financial performance Q2 Net Income (GAAP) Q2 EPS (GAAP) Consolidated LTM ROE1 ($ in millions) 9.2% 9.4% Core $46.1 $42.5 $0.42 $0.39 $20.6 $17.0 $0.19 $0.16 8.6% GAAP $31.2 $32.6 $0.29 $0.30 ($5.7) ($7.1) 2018 2019 2018 2019 ($0.05) ($0.06) 7.2% GAAP/ Utility 7.8% 7.7% Core Utility Ba
Slide 12: Q2 2019 utility financial highlights
Q2 2019 utility financial highlights ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) Q2 2019 vs Q2 2018 Rate relief and RAM revenues 7 MPIR revenues 3 Operations and maintenance excluding net income (4) $32.6 neutral items1 $31.2 Depreciation (3) 25kv work incl
Slide 13: Q2 2019 bank performance
Q2 2019 bank performance BANK NET INCOME Key bank earnings drivers, after-tax 2Q19 vs 2Q19 vs ($ IN MILLIONS) fav/(unfav) 1Q19 2Q18 Net interest income (2) 1 Provision for loan losses (1) (4) $20.6 $20.8 $17.0 Noninterest income 1 2 Noninterest expense (2) (3) 2Q18 1Q19 2Q19 SUMMARY OF ASB Common eq
Slide 14: Bank profitability metrics
Bank profitability metrics Return on assets (%) Return on average equity (%) 10.46 1.26 10.24 >1.15 0.96 2019 ASB Peers ASB Peers Annual Target 2Q19 2Q19 2Q19 2Q19 ASB Target ASB QTD Annualized Peers1 Source for peer data: SNL Financial (based upon data available as of August 1, 2019). Note: Quarter
Slide 15: Net interest margin
Net interest margin YTD NIM 3.90% ASSET YIELD 5.0 NET INTEREST MARGIN (%) 1 ASB Peers 4.5 4.00 4.0 4.22 4.29 3.5 3.99 4.06 4.11 3.75 3.0 2Q18 3Q18 4Q18 1Q19 2Q19 3.50 3.99 COST OF FUNDS (%) 3.95 3.81 3.82 1.2 3.76 3.25 0.8 0.4 3.00 0.24 0.26 0.28 0.31 0.30 2Q18 3Q18 4Q18 1Q19 2Q19 0.0 2Q18 3Q18 4Q18
Slide 16: Net interest income
Net interest income ($ in millions) 6.8% annualized loan growth, 3.2% annualized deposit growth Total loans $5,008 $4,858 $4,775 Net interest income and noninterest income Net interest income Noninterest income $73.4 $78.3 $77.0 2Q18 1Q19 2Q19 $14.6 $13.8 $15.5 Total deposits $6,116 $6,206 $6,257 $6
Slide 17: Prudent credit quality management
Prudent credit quality management Net charge-offs1 Nonaccrual loans2 0.83% 0.79% 0.40% 0.37% 0.39% 0.32% 0.29% 0.57% 0.59% 0.56% 0.40% $39.4 0.38% 0.38% 0.38% 0.07% 0.07% 0.05% 0.06% 0.05% $7.7 $6.9 $27.2 $27.9 $27.3 $6.0 $40.2 $4.7 $4.4 $4.7 $3.9 $3.6 $2.8 $2.4 2Q18 3Q18 4Q18 1Q19 2Q19 2Q18 3Q18 4Q
Slide 18: Efficiency improvement remains a key focus
Efficiency improvement remains a key focus Efficiency ratio (%) ✓ ASB’s efficiency ratio increased during the second quarter, 64.9 however year-to-date the efficiency 61.9 61.6 60.1 ratio has improved (60.1% versus 59.4 61.6 60.6% last year)1 59.1 58.3 1 56.4 55.9 55.6 ✓ Targeting 100 basis points o
Slide 19: Clean and reliable energy drives capital investment
Clean and reliable energy drives capital investment Compound annual CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST rate base growth of ($ in millions) ($ in millions) ~5-7% through $600 $5,000 2021 even without $400-500 $400-500 3-Year CAGR ~5-7%1 CIP and West Loch $401 $411 battery projects, as $
Slide 20: HEI 2019 EPS guidance
HEI 2019 EPS guidance (as of August 2, 2019) HEI EPS: $1.85 - $2.05 PER SHARE UTILITY EPS: $1.40 - $1.47 BANK EPS: $0.79 - $0.85 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • No change to decoupling or recovery mechanisms • Low to mid-single digit earning asset growth • No material impact from PIM penalties a
Slide 21: Summary
Summary HEI • Focused on enterprise mission to be a catalyst for a better Hawaii • Place-based strategy provides the financial resources to invest in our strategic growth and Hawaii’s sustainable future Hawaiian Electric Company • Advancing 100% renewable energy and carbon neutral goals • Focused on
Slide 22: Slide 22
Slide 23: Appendix
Appendix [EXE] Catalyst for a better Hawai‘i
Slide 24: HEI financing outlook 2019
HEI financing outlook 2019 (as of June 30, 2019) 2019 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) Intend to maintain a ~$190M ~$190M consolidated investment Holding Company Debt Issuance ~$30 grade profile Expense, ~$30 HEI Investments in Utility, ~$20 Utility capex program equity need
Slide 25: Utility LTM ROE reflects triennial rate case transition
Utility LTM ROE reflects triennial rate case transition LTM 6/30/19 CONSOLIDATED UTILITY ROE 1 2 3 4 5 6 6 7 8 (((1) 23
Slide 26: Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases
Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases Hawaiian Electric Hawaiian Electric Maui Electric Total Pension Adjustment Plant Adds Adjustment Pension Adjustment Net Net Net Bps Rev Req Net Income Rev Req Rev Req Rev Req Income Income Income (ROE) 2018 $5,250 $3,
Slide 27: Utility LTM ROE
Utility LTM ROE Consolidated utility ROE 12 months ended June 30 7.7% (core) 7.8% 7.2% (GAAP) 2018 2019 Consolidated utility Hawaiian Electric Hawaii Electric Light Maui Electric 2019 7.8% 7.7% 8.3% 8.1% 2018 (GAAP) 7.2% 7.2% 7.5% 6.8% 25 25
Slide 28: Oil is the primary driver of rates in Hawaii
Oil is the primary driver of rates in Hawaii BREAKDOWN OF HAWAIIAN ELECTRIC RATES1 (typical residential bill) ¢/kWh Fuel Purchased Energy Fossil Fuels 40 Revenue Taxes Purchased Energy Renewables PPAC Expenses All Other July 2019 31.8 31.5 December 2018 $160.95 30.9 $169.64 29.1 29.7 30 27.4 24.3 24
Slide 29: Utility regulatory mechanisms provide financial stability during renewable transition
Utility regulatory mechanisms provide financial stability during renewable transition Mechanisms & Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last rate case what they do: (revenues not linked to kWh sales) Rate adjustment mechanism (RAM) Annually
Slide 30: Hawaii Electric Light 2019 rate case
Hawaii Electric Light 2019 rate case: Updates from latest filing (latest filing versus most recent approved rate case) Hawaii PUC docket no. 2018-0368 Final D&O (2016 Test Year) Application (2019 Test Year) (6/29/18) (12/14/18)1 (eff. 10/1/18) Amount requested Commission approves rates implemented i
Slide 31: Maui Electric rate case: 2018 test year
Maui Electric rate case: 2018 test year Hawaii PUC docket no. 2017-0150 Order Approving Parties’ Adjustment for Tax June 2018 Settlement Interim D&O Joint Proposed Final Application Rates and Refund Plan Reform Approved New (8/9/18) (10/12/17) (5/16/19) (2/26/18) Depreciation Rates (eff. 8/23/18) (e
Slide 32: Hawaiian Electric rate case: 2017 test year
Hawaiian Electric rate case: 2017 test year Hawaii PUC docket no. 2016-0328 March 2018 Settlement/ Final D&O Application Settlement Interim D&O Tax Reform Act Impact (6/22/18) (12/16/16) (11/15/17) (12/15/17 as modified) (3/5/18) (eff. 9/1/18) Amount requested $106.4M Approximately $53.7M (at Approx
Slide 33: Major project interim recovery (MPIR) mechanism
Major project interim recovery (MPIR) mechanism Hawaii PUC docket no. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Schofield Generating Station project • Allows recovery for eligible major projects in between rate cases through the revenue • Capital cost recovery approved June 2
Slide 34: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) CURRENT PIMS1 ($ in millions) Reliability Customer Service Fuel Cost Resource Acquisitions $4.0 $6.5 $2.0 $2.5 $1.3 $0.0 $0.0 $0.0 $0.0 $0.5 $0.0 ($1.3) ($2.5) ($3.3) ($3.3) ($2.0) ($4.0) Interruption Interruption Call Center Fuel Cost Risk Demand Renewable RF
Slide 35: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Hawaiian Electric 2017 test year rate case D&O, Hawaii PUC docket no. 2016-0328 Maui Electric 2018 test year rate case D&O, Hawaii PUC docket no. 2017-0150 • In final D&O in Hawaiian Electric 2017 rate case, Commission established fossil fuel cost risk sharing mechanism
Slide 36: 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
Slide 37: Grid modernization strategy update
Grid modernization strategy update Hawaii PUC Docket Nos. 2017-0226, 2018-0141 • In February 2018 the PUC approved the strategy and directed the Companies to implement the Grid Modernization Strategy with project applications to follow • Customer and stakeholder engagement used to define grid modern
Slide 38: Electrification of transportation (EoT) strategic roadmap
Electrification of transportation (EoT) strategic roadmap Hawaii PUC docket no. 2018-0135 • 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 develop plans; engagement
Slide 39: Distributed energy resources (DER) update
Distributed energy resources (DER) update Hawaii PUC docket no. 2014-0192 • In February 2018, the Companies launched two new DER programs: - Smart Export: Intended for customers installing a rooftop PV system combined with a battery energy storage system. Customers may export energy between 4pm – 9a
Slide 40: Quality balance sheet and strong capital efficiency
Quality balance sheet and strong capital efficiency ASB1 PEER BANKS2 Average yield on earning assets 4.11% Median of average yield on earning assets 4.54% Average cost of funds 0.30% Median of average cost of funds 1.04% Return on average equity3 10.46% Return on average equity 10.24% 100% of Loans
Slide 41: 2019 ASB peer group
2019 ASB peer group 1st Source Corporation SRCE First Busey Corporation BUSE OFG Bancorp OFG Ameris Bancorp ABCB First Commonwealth Financial Corporation FCF Oritani Financial Corp. ORIT Axos Financial, Inc. AX First Financial Bankshares, Inc. FFIN Pacific Premier Bancorp, Inc. PPBI BancFirst Corpor
Slide 42: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements This report and other presentations 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
Slide 43: Forward-looking statements (continued)
• the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans (PSIPs), Demand Response Portfolio Plan, Distributed Generation Interconnection Plan, Grid Modernization Plans, and business
Slide 44: Forward-looking statements (continued)
• discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight; • decisions by the PUC in rate cases and other proceedings (including the risks of delays in
Slide 45: 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, which exclude certain items that are not reflective of ongoing operations or that are not expected to reoccur, to evaluate the performance of HEI and the utilit
Slide 46: Reconciliation of GAAP to non-GAAP measures
RECONCILIATION OF GAAP! TO NON-GAAP MEASURES Hawaiian Electric Industries, Inc. and Subsidiaries (HEI) Unaudited Twelve months ended June 30 (S in millions) 2019 2018 HEI CONSOLIDATED NET INCOME GAAP (as reported) AY 203.7 $s 178.7 Excluding special items (after-tax): One-time non-executive bank emp
Slide 47: Reconciliation of GAAP to non-GAAP measures
RECONCILIATION OF GAAP! TO NON-GAAP MEASURES Hawaiian Electric Company, Inc. and Subsidiaries Unaudited Twelve months ended June 30 (Sin millions) 2019 2018 HAWAIIAN ELECTRIC CONSOLIDATED NET INCOME GAAP (as reported) $ 149.7 $s 131.5 Excluding special items (after-tax): Federal tax reform impacts”
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