Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Investor Presentation (May 2023)
56 slides from Hawaiian Electric Industries's investor presentation, May 2023
Slide 1: Investor Presentation May 2023
Investor Presentation May 2023
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: The HEI Story: 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 Earnings Contribution1 Key Facts Utility Bank Publicly traded company in Hawaii2 #1 Market capitalization3 $4.1B 72% 28% Dividend yield3 3.8% Percent of population served with electricity 95% Utility carbon reduction goal by 20304 70% Bank assets $9.6B Sustai
Slide 5: Uniquely Positioned – Growth Potential Under a New Utility Regulatory Framework
Uniquely Positioned – Growth Potential Under a New Utility Regulatory Framework, Combined With Stable Bank Cash Flow Growth Potential Enhanced Under High Quality, Low-risk Bank Provides New Utility Regulatory Framework Stable Cash Flow Framework enhances opportunity for steady earnings growth + Low
Slide 6: Aligned with the Success of Hawaii in a Virtuous Cycle
Aligned with the Success of Hawaii in a Virtuous Cycle Aligned with Hawaii’s Engage with communities, 1 culture of sustainability 2 employees and regulators Success – tied to a 5 thriving Hawaii 3 Set ambitious goals Execute and deliver results 4 for all stakeholders 6
Slide 7: ESG is Deeply Embedded in Our Core Strategies
ESG is Deeply Embedded in Our Core Strategies Core Focus • Leading decarbonization and • Full-service community bank • Sustainable infrastructure clean energy transition with providing superior customer investment focus on affordability, reliability, experience and advancing resilience and equity ec
Slide 8: Stable Long-term Performance Record and Trajectory
Stable Long-term Performance Record and Trajectory Net Income ($M) Positive Dynamics $246 $241 Electric Utility $202 $218 $198 $165 New utility regulatory environment Investment in clean, resilient grid 1 2 2017 2018 2019 2020 2021 2022 Bank ROE (%) Strong business model that has proven resilient 9.
Slide 9: The HEI Story: At Inflection Point
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: Committed to Meeting or Exceeding Our Goals
Committed to Meeting or Exceeding Our Goals Carbon Emission Reduction1 (vs 2005) Renewable Portfolio Standard3 (RPS) 2005 Emission Level 40% 2030 Goal -12% -22%2 32% 32% 30% 2020 Goal4 28% 21% 15% 2015 Goal -70% 2019 2022 2030 2015 2020 2021 2022 1. Certain near-term projects and completion dates ha
Slide 13: Key Initiatives Underway to Achieve Our 2030 Goal
Key Initiatives Underway to Achieve Our 2030 Goal Initiatives On Track • Ended coal use in Hawaii in Sept. 2022 with expiration of coal plant contract • Retiring and reducing use of fossil fuel generation units • Adding 1 GW of renewable generation capacity • Adding 50,0001 rooftop solar systems • I
Slide 14: Switch to Renewable Energy Expected to Lower and Stabilize Customer Rates
Switch to Renewable Energy Expected to Lower and Stabilize Customer Rates Energy Cost as of 3/2023 ($/kWh) Utility Fossil Fuel 2016+ PPAs Contracted Renewable Energy Cost Energy Cost (Proposed and Approved) $0.30 Fossil Fuel Cost $0.23 to $0.25 $0.20 $0.12 to $0.16 $0.10 $0.08 to $0.11 $0.08 to $0.1
Slide 15: The HEI Story: At Inflection Point
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: • New incentives aligned with needs of: − stability established in June Potential – public poli
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: Mechanisms to Incentivize Achievement of Key Outcomes
Mechanisms to Incentivize Achievement of Key Outcomes Metric Opportunity T&D SAIDI and SAIFI ($6.8M) annually Call Center Performance +$1.4M / ($1.4M) annually Pre-PBR Fossil Fuel Cost Risk Sharing +$3.7M / ($3.7M) annually West Loch PV Based on under/overproduction Heat Rate NA Renewable RFP Stage
Slide 19: The HEI Story: At Inflection Point
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 Low cost of community balance Sheet loan portfolio funds bank 100% ~$9.6B of loans funded by low-cost core deposits 82% ~66bps 1 total assets of loan portfolio relatively low cost of 98% secure
Slide 21: ASB: Long-tenured, and “Sticky” Retail Deposit Base
ASB: Long-tenured, and “Sticky” Retail Deposit Base Deposit base mostly retail, largely insured ✓ 85% of deposits F.D.I.C. insured or Uninsured 15% fully collateralized $8.23 Bn Insured or fully ✓ 86% of deposits from retail customers total deposits as of 3/31/23 collateralized 85% ✓ Long-tenured re
Slide 22: Retail Deposit Concentration Drives one of the Highest Insured Deposit Proportions
Retail Deposit Concentration Drives one of the Highest Insured Deposit Proportions in the Industry Uninsured deposit % vs. KBW Regional Banking Index Constituents 71% 65% 59% 60% 60% 53% 54% 54% 55% 51% 51% 52% 52% 49% 50% 50% 45% 46% 46% 46% 47% 47% 47% 43% 43% 44% 44% 40% 40% 40% 41% 41% 42% 42% 3
Slide 23: Average Core Deposits Remain Higher than Pre-pandemic Levels
Average Core Deposits Remain Higher than Pre-pandemic Levels 8,081 8,180 8,294 8,289 8,227 8,157 7,795 7,937 7,446 433 411 387 472 608 7,184 495 466 740 6,820 7,029 540 6,278 597 553 6,217 740 776 770 4,693 4,795 4,882 4,850 4,788 4,469 4,571 4,672 4,138 4,260 4,011 3,806 3,554 3,593 2,646 2,831 2,8
Slide 24: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M)* $4,634 ASB has more than $193M of excess equity above the “well capitalized” level Capital Ratio Tier 1 leverage $3,299 $3,199 $2,548 As of 3/31/23 7.71% $1,640 $888 “Well capitalized” 5.00% $2,069 $2,040 $1,633 Minimum require
Slide 25: Strong Cash Flow Generation
Strong Cash Flow Generation Bank Dividends to HEI ($M) $59 $56 $50 ~$50 2 $42 $36 $38 1 $30 $31 2015 2016 2017 2018 2019 2020 2021 2022 2023E 1. Lower dividend in 2020 due to pandemic uncertainty. 2. Lower dividend in 2022 due to strong loan growth (>15%), which requires the bank to retain more capi
Slide 26: Clear Priorities to Drive Continued Steady Growth in Bank Earnings
Clear Priorities to Drive Continued Steady Growth in Bank Earnings 1 2 3 4 5 Long-Term Meet customer Optimize Attract and Profitable Invest in branch network Drive ESG expectations + technology + and operating + retain diverse + progress Growth in a digital world talent model S U S T A I N A B I L I
Slide 27: The HEI Story: At Inflection Point
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 28: Positive Near-term Factors Set Stage for Sustained Long-Term Growth
Positive Near-term Factors Set Stage for Sustained Long-Term Growth • Progress on utility climate goals • Progress digital transformation • Optimize O&M and capex within ARA • Maintain low-risk community banking business • Earn additional revenues for separately- model with deposit base concentrated
Slide 29: Capex Set to Grow, Driven by Renewables and Reliability
Capex Set to Grow, Driven by Renewables and Reliability Capital Expenditures Forecast ($ Millions) $330-$540 Pending PUC $370-$410 $320-$430 Approval Separate Recovery $357 Approved Expect to invest ~$2B over next ARA 5 years Approved Recovery 2022A 2023E 2024E 2025E Note: Capital expenditure figure
Slide 30: Maintaining 2023 EPS Guidance Range
Maintaining 2023 EPS Guidance Range1 Key Assumptions: $1.75-$1.85 $2.15-$2.35 ➢ Full recovery of COVID-19 $0.75-$0.85 expenses Key Assumptions: ➢ No significant fuel cost risk ➢ NIM: 2.80% – 2.90% sharing penalty or reward assumed ➢ Provision exp. $0M – Additional Assumptions: $10M ➢ Holdco and othe
Slide 31: The HEI Story: At Inflection Point
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 32: Appendix
Appendix —_—e
Slide 33: Our Senior Leadership Team
Our Senior Leadership Team Scott Seu Paul Ito Shelee Kimura Ann Teranishi Dane Teruya HEI HEI Hawaiian Electric American Savings Bank American Savings Bank President & CEO EVP, Chief Financial Officer & President & CEO President & CEO EVP & Chief Financial Officer Treasurer • President & CEO of Hawa
Slide 34: Hawaii Economy Stable Across All Indicators
Hawaii Economy Stable Across All Indicators Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals (In thousands) Visitor Arrivals Unemployment Rate 2019 2021 2022 2023 12,000 14 % Mar. 2023 YTD: 2.5M Mar. 2023: 3.5% 12 1,200,000 10,000 10 1,000,000 8,000 8 800,000 6,000 6 600,000 4,000 4 400
Slide 35: 1Q23 Financial Performance
1Q23 Financial Performance Net Income ($M) EPS (GAAP) Consolidated LTM ROE 10.9% $69.2 10.0% $54.7 $0.63 $0.50 $23.9 $18.6 $0.22 $0.17 $46.4 $47.0 $0.42 $0.43 ($1.1) 1 ($0.01) 1 2022 2023 ($10.9) ($0.10) Utility 8.1% 8.2% 1Q22 1Q23 1Q22 1Q23 Bank2 13.7%/14.4% 15.5%/13.5% Utility Bank Holding Co. & O
Slide 36: 1Q23 Financial Highlights
1Q23 Financial Highlights $0.01 $0.01 $0.04 $0.03 $0.03 $0.04 $0.02 $0.06 $0.01 $0.02 $0.03 $0.01 $0.06 $0.63 Total: ~($0.05) Total: ~$0.01 $0.50 1Q 2022 EPS Net interest Provision Noninterest Noninterest ARA AFUDC MPIR O&M Depreciation Heat Rate Interest & HoldCo & Gain on sale 1Q 2023 EPS income e
Slide 37: HEI Financing Outlook 2023
HEI Financing Outlook 20231 • Both bank and utility remain net cash 2023 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2023 ~$200M ~$200M • Balance sheet remains investment grade HC Expense ~$40 • Two investment grade subsidiaries:
Slide 38: Utility Outlook Drivers
Utility Outlook Drivers • Continued focus on efficient operations and holding O&M increases O&M expenses within ARA-allowed 3.68% inflationary increase despite higher storm- related costs in the quarter Performance Incentive • On track for guidance of $4 million in net PIM rewards for the year Mecha
Slide 39: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment $330-$540 Capital Expenditures Forecast ($ in millions) Pending Separate $370-$410 $320-$430 Approval $357 Recovery Low range includes baseline ARA capital Approved and approved separately recovered projects. Approved ARA High range inc
Slide 40: Utility LTM ROE
Utility LTM ROE ROE (%) 9.5% 0.3% 9.2% 0.5% 0.3% 0.2% 8.2% Allowed Non-recoverable ROE less Actual O&M, Fuel Risk Others, Actual Q1 2023 ROE items (i.e. Incentive Structural Depreciation and Sharing and net Core ROE compensation, Items Return on Higher Fuel advertising, charitable Inventory Rate Bas
Slide 41: PBR Framework – A Closer Look
PBR Framework – A Closer Look Mechanism Before – Pre PBR After – Post PBR Term of rate plan 3 years 5 years Cost trackers In place Remain in place Slight modification – Revenue Adjustment allowance tied to inflation with In place Mechanism (RAM) adjustments for customer dividend and other factors Ex
Slide 42: Mechanisms to Incentivize Achievement of Key Outcomes
Mechanisms to Incentivize Achievement of Key Outcomes PIMs Description T&D SAIDI and SAIFI Incentivizes T&D-caused reliability. Targets based on utility’s historical 10-year average with a deadband of one standard deviation Call Center Penalizes or rewards call center performance based on percentage
Slide 43: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2022 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2023-2025) $8 $6 $4 - $7 $4 $3 - $6 Forecast based on March 2023 assumptions for renewable project $2 $1 - $3 commercial operation $0 $0 dates and total generation 2022 2023 2024 20
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 PUC held a PBR Working Group coordination meeting in March 2023 Subgroups to schedule next meeting and develop an Proceeding to evolve regulatory framework to better a
Slide 45: Status of Key Open Dockets, Continued
Status of Key Open Dockets, Continued Subject and Description Docket # Latest Development Next Milestone Community Based Renewable Energy 2015-0389 Tranche 1 RFP selections made in February. Lanai replacement Four-month procurement of small projects; LMI and Phase 2 program capacity expanded to 235
Slide 46: 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 47: 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 22% 7% 542.7 CAGR 517.8 483.0 of
Slide 48: Bank Outlook Drivers
Bank Outlook Drivers Net interest margin moderated by higher funding costs, credit trends remain positive • Further Fed funds rate hikes provide continued benefit, but offset by higher funding costs and reduced balance sheet asset sensitivity • Provision expectations continue to reflect strong credi
Slide 49: Net Interest Margin Seeing Impacts from Higher Funding Costs
Net Interest Margin Seeing Impacts from Higher Funding Costs but Improved from Q1 2022 1 Yield on Earning Assets (%) Cost of Funds (%) Net Interest Margin (%) 3.28 3.49 2.79 2.91 2.85 2.83 0.66 0.38 0.05 1Q22 4Q22 1Q23 1Q22 4Q22 1Q23 1Q22 4Q22 1Q23 Funding sources 2022 average Q1 2023 average Actual
Slide 50: ASB: Conservative Loan Portfolio
ASB: Conservative Loan Portfolio ✓ 82% of loan book backed by real estate Land • Weighted-average loan-to-values of Sr Home Spcl Purpose Resi PUL 1% 1% 2% 4% <50% for residential and <55% for HELOC 17% Nat syn 5% 2% Other cons. commercial 2% Office 10% Retail 38% ✓ 23% of loans are commercial real e
Slide 51: Hawaii’s Office Market Remains Resilient
Hawaii’s Office Market Remains Resilient Healthy Hawaii economy supporting CRE Office vacancy rates 25.0% San Francisco*: 22.2% ✓ Oahu’s office market less volatile with 20.0% L.A.: 21.7% lower vacancy rates than most U.S. Sacramento*: 18.7% metro areas since the pandemic Portland: 17.9% 15.0% Oahu:
Slide 52: Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans
Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans Commercial & National Loan portfolio characteristics Syndications Industrial Commercial 7.8% 5.3% Personal ✓ ~82% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 55% Constructi
Slide 53: Quality Bank Balance Sheet and Loan Portfolio
Quality Bank Balance Sheet and Loan Portfolio ASB1 Investment Portfolio Investment Portfolio Average yield on earning assets 3.49% Sectors Ratings Average cost of funds 0.66% Return on average equity 15.5% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 62% Core Deposits 7
Slide 54: 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, depen
Slide 55: 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 or resilience proposals, among others, and related costs; reliance by the Utili
Slide 56: 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
Hawaiian Electric Industries — Investor Presentation (May 2023) on 6ix