Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — EEI Financial Conference 2019
70 slides from Hawaiian Electric Industries's conference presentation, Nov 11, 2019
Slide 1: Hawaiian Electric Industries, Inc. EEI Financial Conference
Hawaiian Electric Industries, Inc. EEI Financial Conference November 10 -12, 2019
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: A catalyst for a better Hawaii
HAWAIIAN ELECTRIC INDUSTRIES A catalyst for a better Hawaii
Slide 4: HEI – A catalyst for a better Hawaii
HEI – A catalyst for a better Hawaii • HEI's place-based strategy provides long-term shareholder value through strategic investments in Hawaii's growing economy and a leading role in Hawaii's transformation to a resilient, sustainable future • Efficient capital generation and optimized capital struc
Slide 5: Our enterprise
Our enterprise Delivering consistent, predictable earnings while limiting the need to issue equity 1 Provides electricity for 95% of Serving our communities as Invests in infrastructure to Hawaii’s population through 5 Hawaii’s third largest bank, advance Hawaii’s clean Our business separate island
Slide 6: ESG is in our DNA, and our core strategies
ESG is in our DNA, and our core strategies Strength of our companies is inextricably linked to the health of our environment, economy and communities Focused on achieving state’s 100% renewable energy goal in a way that is reliable, resilient and affordable for customers Embedded in Core Investing i
Slide 7: HEI overview
HEI overview Hawaii's largest corporation with a diversified platform supplying energy, investing in a sustainable future, and providing financial services Kauai 3 Oahu 34 4 Molokai 1 Maui Utility Lanai 6 service territory 1 Hawaii Bank 5 branches 1 Pacific Current projects 64% (Utility) 3,898 16% F
Slide 8: Continued financial performance
Continued financial performance YTD SEPT NET INCOME Utility continues $152.2 $151.6 CONSOLIDATED LTM HEI ROE to execute to full year plan 9.4% while ASB is $60.7 $60.7 Core 9.2% executing well in a challenging interest rate environment $108.4 $111.5 ($16.9) ($20.6) 8.6% 2018 2019 GAAP YTD SEPT DILUT
Slide 9: 2019 YTD highlights
2019 YTD highlights Improved Hawaiian Electric earnings; American Savings Bank maintaining industry-leading NIM despite challenging interest rate environment Hawaiian Electric’s Stage 2 RFP marks an important milestone towards achieving 100% renewable energy; 75 bids already received Hawaiian
Slide 10: Track record of delivering shareholder value
Track record of delivering shareholder value Outperformed the S&P 500 and broader utility index YTD and over 1, 3 and 5 year periods with lower risk profile Strong consolidated investment grade balance sheet provides access to competitively priced growth capital Efficient capital structure and growi
Slide 11: Advancing Hawaii's clean energy transition
HAWAIIAN ELECTRIC Advancing Hawaii’s clean energy transition
Slide 12: Committed to ambitious renewable energy goals
Committed to ambitious renewable energy goals Strong progress and on track to exceed next milestone HAWAII’S 100% BY 2045 RPS GOAL IS AMONG THE ON COURSE TO EXCEED 2020 TARGET OF 30% MOST AMBITIOUS IN THE NATION 35% 30% (1) 27% 27% 26% 25% 23% 21% 20% 18% 14% 15% 12% 9% 10% 10% 10% 5% 0% 2008 2009 2
Slide 13: Principles guiding our renewable energy plans
Principles guiding our renewable energy plans Focused on affordable, reliable, resilient renewable energy Renewable energy is our We are aggressively pursuing cost-effective renewable #1 option resources Every customer must have We must ensure access to affordable electricity for all access to affor
Slide 14: Key elements of clean energy transformation
Key elements of clean energy transformation Foundational Plans in Place Key Initiatives Underway Aggressively procuring utility-scale renewable energy Power Supply Improvement Plan Growing distributed energy resources Long-range plan outlining Implementing grid modernization strategy scenarios and g
Slide 15: Aggressively pursuing utility-scale renewables
Aggressively pursuing utility-scale renewables Record procurement initiatives underway • Launched among largest renewable procurement efforts ever undertaken by a US utility If approved and ‒ Challenging market to deliver cost-effective projects for up to 900 completed on time, MW renewable energy,
Slide 16: Encouraging rooftop PV, customer-sited resources
Encouraging rooftop PV, customer-sited resources Providing infrastructure and programs to integrate DER Hawaiian Electric’s service territory has the nation’s # of Residential PV Systems highest penetration of rooftop solar • Distributed energy resources (DER) are a key 76,741 74,331 element of util
Slide 17: Renewable energy is key to customer affordability in Hawaii
Renewable energy is key to customer affordability in Hawaii UTILITY FOSSIL FUEL ENERGY COST CONTRACTED RENEWABLE ENERGY COST Subject to volatile oil prices Significant reduction in cost of utility-scale renewables Energy Cost Oil ($/kWh) Pre-2016 PPAs 2016 – 2018 PPAs Innovative new PPAs 0.40 Wind 2
Slide 18: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment Annual investment of 2x depreciation to transform grid, integrate more renewables CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST ($ in millions) ($ in millions) 3-Year CAGR ~5-7%1 $600 $3,720- $400-500 $400-500 3,890 $4,000 $3,450- $4
Slide 19: Phase 2 of PBR underway
Phase 2 of PBR underway Will determine financial impact of PBR as details are developed Extension of timeline to Dec. 2020 allows for thoughtful formulation of mechanisms Gradualism, utility financial integrity continue to be key principles Annual revenue adjustment mechanism has potential to
Slide 20: American Savings Bank: Serving and investing in Hawaii's families
AMERICAN SAVINGS BANK Serving and investing in Hawaii’s families, businesses and communities
Slide 21: American Savings Bank: Strong management with consistent performance
American Savings Bank: Strong management with consistent performance • One of Hawaii’s largest financial institutions – full-service community bank with $7 billion in assets and 49 branches across the state • Consistent profitability with growth opportunities in attractive Hawaii banking market • Tr
Slide 22: Q3 2019 bank performance
Q3 2019 bank performance Continued execution in recent low interest rate environment, growing net income and maintaining net interest margin Best-in-class funding costs help maintain margins above peers Conservative growth strategy focused on prudent credit quality management while expanding l
Slide 23: Revenue growth driven primarily by net interest income
Revenue growth driven primarily by net interest income ASB has a track record of converting deposit growth to higher net interest income ($ in millions) TOTAL DEPOSITS GREW 1.1% AVERAGE INTEREST-EARNING NET INTEREST INCOME ASSETS INCREASED 2.3% INCREASED 1.5% $76.5 $78.4 $6,377 $6,468 $6,130 $6,196
Slide 24: Net interest margin
Net interest margin YTD NIM 3.90% ASSET YIELD NET INTEREST MARGIN (%) 4.59 4.29 4.31 4.60 4.00 3.97 3.88 3.87 3.98 4.12 4.45 4.18 3.96 3.83 3.74 3.81 3.89 4.07 4.17 3.93 3.87 3.83 3.74 2011 2012 2013 2014 2015 2016 2017 2018 2019 3.69 3.62 3.59 3.69 3.68 3.53 YTD COST OF FUNDS (%) 3.62 3.62 3.57 3.5
Slide 25: Efficiency improvement remains a key focus
Efficiency improvement remains a key focus Efficiency ratio (%) 2 64.9 61.9 61.6 ASB’s efficiency ratio 59.4 59.6 continues improving 61.6 58.7 59.1 trajectory (excluding campus 56.4 1 55.9 55.5 transition costs, 58.7% Q319 YTD versus 59.4% 2018)1 Targeting an average of ~100 basis points of imp
Slide 26: Low-risk loan mix
Low-risk loan mix TOTAL LOANS AT 09/30/19 - $5.0B1 HELOC 21% (2) Residential 1-4 43% Consumer 5% Residential construction & Commercial markets lot loans 1% 13% Commercial real Commercial estate 16% construction 1% 1 Before deferred fees, discounts and allowance for loan losses. 26
Slide 27: Quality balance sheet and capital efficiency
Quality balance sheet and capital efficiency ASB1 PEER BANKS2 Average yield on earning assets 4.11% Median of avg. yield on earning assets 4.60% Average cost of funds 0.30% Median of avg. cost of funds 1.10% Return on average equity3 13.75% Return on avg. equity 11.09% 100% of ASB loans Loans Core D
Slide 28: Pacific Current: Pursuing opportunities in Hawaii's sustainable infrastructure market
PACIFIC CURRENT Pursuing opportunities in Hawaii’s sustainable infrastructure market
Slide 29: Sustainable infrastructure investment platform
Sustainable infrastructure investment platform • Proof of strategy with first two projects proceeding well • Initial project’s earnings and cash flow helping fund Pacific Current start-up costs • Near-term focus on identifying/pursuing new project opportunities Advancing Hawaii’s Energy and Sustaina
Slide 30: Pacific Current recent initiatives highlight focus on sustainability
Pacific Current recent initiatives highlight focus on sustainability Recent developments • Contract to provide locally-produced biofuels for Hamakua Energy facility advances Hawaii Island energy independence and energy security, supports local economy • 5 solar + storage projects with University of
Slide 31: Financial outlook
Financial outlook HEI
Slide 32: HEI 2019 EPS guidance
HEI 2019 EPS guidance (as of November 1, 2019) HEI EPS: $1.85 - $2.05 PER SHARE UTILITY EPS: $1.40 - $1.47 BANK EPS: $0.79 - $0.85 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • No change to decoupling or recovery mechanisms • Low to mid-single digit earning asset • No material impact from PIM penalties and gr
Slide 33: HEI financing outlook 2019
HEI financing outlook 2019 (as of September 30, 2019) 2019 HOLDING COMPANY SOURCES & USES OF CAPITAL Intend to maintain ($ in millions) a consolidated investment grade profile ~$190 ~$190 Utility capex Holding Debt Issuance Company program equity Expense, ~$30 ~$30 needs funded HEI Investments witho
Slide 34: Appendices
Appendices HEI
Slide 35: HEI's business strategy has provided superior risk-adjusted returns
HEI’s business strategy has provided superior risk-adjusted returns to its shareholders ANNUALIZED TOTAL SHAREHOLDER RETURN 32.0% 27.5% 19.3% 14.0% 15.7% 13.4% 13.1% 10.8% 4.2% 1-Year 3-Year 5-Year HEI UTY S&P 500 VOLATILITY 1 16.5% 10.1% 10.7% HEI UTY S&P 500 Note: Bloomberg as of 9/30/19; Assumes
Slide 36: Debt maturities & credit ratings
Debt maturities1 & credit ratings ($ in millions) Credit 1600 HEI Hawaiian Electric ASB Ratings HEI Hawaiian Electric Pacific Current 2 Moody’s Unrated/Positive/P-3 Baa2/Positive/P-2 n/a Pacific Current: ~$4 million debt payment in each year $43 1200 3 S&P BBB-/Stable/A-3 BBB-/Stable/A-3 BBB/Stable/
Slide 37: Hawaii economy remains stable
Hawaii economy remains stable Moderate pace of growth Sept. 2019 vs YTD 2019 vs YTD 2018 Sept. 2018 Total arrivals +3.5% +5.5% Tourism Total expenditures -3.9% -0.1% Unemployment • September 2019 – Hawaii: 2.7%; U.S.: 3.5% • YTD September 2019 Oahu sales volume vs PY: – Single family homes, up 0.8%
Slide 38: Hawaii's economic trends remain attractive
Hawaii’s economic trends remain attractive Visitor arrivals and expenditures remain strong despite slower growth UNEMPLOYMENT RATE (%) HAWAII VISITOR ARRIVALS (MILLIONS) Unemployment rate consistently below U.S. mainland Sustained growth in visitor arrivals 5.3 4.9 USA 10.5 10.7 10.8 4.4 10.0 10.3 8
Slide 39: Hawaii's economy is driven by a diversity of factors
Hawaii’s economy is driven by a diversity of factors Federal defense spending and tourism from a diversity of economies drive economic stability JOBS BY INDUSTRY (%)1 TOURISM BY SOURCE2 Natural Europe Korea China All other resources, Professional & 2% 2% 1% 4% mining & business construction services
Slide 40: 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 October 2019 31.8 31.5 30.9 $153.64 29.1 All Other 30 27.4 28.2 24.3 24.3 22.6 13.5 12.4 1
Slide 41: Renewable energy projects—status update
Renewable energy projects—status update Near-term renewable projects represent diverse resource mix, contribute significantly to RPS Near term (2019 – 2022) projects by technology (MW)1,2 Near term (2019 – 2022) projects by status (MW)1,2 Proposed, 2019 Biomass Awaiting 22 MW completed Solar Approva
Slide 42: Maintaining strength of core business as renewable transformation continues
Maintaining strength of core business as renewable transformation continues • Utility awarded 50-year Army privatization contract through competitive process ‒ Subject to Commission approval, utility to own, operate and maintain electric distribution system serving Army’s 12 Oʻahu installations begi
Slide 43: Q3 2019 utility financial highlights
Q3 2019 utility financial highlights ($ in millions) Key utility earnings drivers, after-tax fav/(unfav) 3Q19 vs 3Q18 UTILITY NET INCOME New rates (Maui Electric) and RAM revenues 6 MPIR revenues 2 Higher AFUDC and lower interest 2 $49.7 $46.8 Pole attachment fees 1 3Q18 non- recurring tax Operation
Slide 44: Utility LTM ROE reflects triennial rate case transition
Utility LTM ROE reflects triennial rate case transition LTM 9/30/19 CONSOLIDATED UTILITY ROE 1 2 3 4 5 6 7 8 9 10 Structural Lagged 44
Slide 45: 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 $3,
Slide 46: Regulatory evolution: Performance-based regulation (PBR)
Regulatory evolution: Performance-based regulation (PBR) Potential changes under PBR 3-year rate case cycle 5-year rate Multi-year rate plans with interim adjustments plan Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last stays in rate case (revenu
Slide 47: Next phase of long-range planning underway
Next phase of long-range planning underway Integrated Grid Planning (IGP) in initial stages • Integrated approach: − Combines planning and procurement (versus just planning) − Evaluates system needs for generation, transmission and distribution, resilience and other services − Considers all alternat
Slide 48: Regulatory evolution: Performance-based regulation (PBR)
Regulatory evolution: Performance-based regulation (PBR) Phase 1 D&O established conceptual framework Conceptual framework established PBR structure Revenue adjustment mechanisms • A customer-centric approach, including immediate Guiding principles Maintain revenue decoupling and existing cost tra
Slide 49: PBR—Phase II schedule
PBR—Phase II schedule Continues collaborative approach from Phase 1 • Measured timeline shows PUC’s commitment to gradualism in implementing PBR • Collaborative format is focused on creating a thoughtful process that minimizes risk of unintended consequences Phase II start 6/26: Phase II commences W
Slide 50: Performance-based regulation update
Performance-based regulation update Initial proposal filed August 14: offers ideas and encourages stakeholder discussion • 5-year rate period (provided an adequate Annual Revenue Adjustment formula and modified MPIR mechanism are approved). • Initial base rates set in next rate cases: HELCO 2019 tes
Slide 51: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) CURRENT PIMs1 ($ in millions) Reliability Customer Fuel Cost Resource Acquisitions Service (Oahu & Maui) $4.0 $2.0 $6.5 $3.1 $1.3 $0.5 $0.0 $0.0 ($1.3) $0.0 $0.0 $0.0 ($2.0) ($3.3) ($3.3) ($3.1) ($4.0) Interruption Interruption Call Center Fossil Fuel Demand R
Slide 52: Revenue timing
Revenue timing Target revenues are allocated monthly, more weighting in second half of year HECO ALLOCATION FACTORS 23.9% 24.5% 26.3% 25.4% • Annual target revenues for each utility are accrued according to allocation factors specified in Q1 Q2 Q3 Q4 each rate case MECO ALLOCATION FACTORS 23.9% 24.2
Slide 53: Hawaiian Electric 2020 rate case status
Hawaiian Electric 2020 rate case status Hawaii PUC docket no. 2019-0085 Final D&O (2017 test year) Application (2020 Test Year) (6/22/18) (8/21/19) (eff. 9/1/18) Amount requested Commission approves Parties’ Stipulated $77.6 million Settlement Agreements filed on November 15, (4.1% increase over rev
Slide 54: Hawaii Electric Light 2019 rate case updates
Hawaii Electric Light 2019 rate case updates Hawaii PUC docket no. 2018-0368 Application (2019 Test Year) Partial Settlement (9/24/19)3, 4 (12/14/18)1 (Hawaii Electric Light’s position) (for interim rate relief purposes) 5 Amount requested $13.4M $7.1M $2.8M (3.4% increase over revenues at (1.8% inc
Slide 55: Maui Electric rate case: 2018 test year
Maui Electric rate case: 2018 test year Hawaii PUC docket no. 2017-0150 Order Approving Parties’ Joint Adjustment for Tax June 2018 Settlement Interim D&O Proposed Final Rates Application Reform Approved New (8/9/18) and Refund Plan (10/12/17) (2/26/18) Depreciation Rates (eff. 8/23/18) (5/16/19) (e
Slide 56: Integrated Grid Planning (IGP) timeline and elements
Integrated Grid Planning (IGP) timeline and elements IGP elements and expected timeline Mar Jan Mar Aug Oct Mar Jun 2018 2020 2020 2020 2020 2021 2021 2045 Long-term planning Inputs Resource (Resource and T&D needs, value-of-service and long-term considerations) needs planning 5-year resource soluti
Slide 57: 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 • Capital cost recovery approved June 2018 the reve
Slide 58: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Hawaiian Electric 2017 test year rate case D&O, Maui Electric 2018 test year rate case D&O, Hawai‘i Electric Light 2019 test year rate case settlement • Final D&O in Hawaiian Electric 2017 rate case established fossil fuel cost risk sharing mechanism as part of Energy C
Slide 59: 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 60: 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 61: Distributed energy resources (DER)
Distributed energy resources (DER) Hawaii PUC Docket No. 2019-0323 Current programs: − Smart Export: Intended for customers installing a rooftop PV system combined with a battery energy storage system. Customers may export energy between 4pm – 9am for credit, but are not credited for energy exported
Slide 62: 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 63: Proven strategy, with two well-structured, valuable projects in portfolio
Proven strategy, with two well-structured, valuable projects in portfolio Hamakua Energy Combined Cycle University of Hawaii (UH) Solar + Power Plant (Acquired Nov. 2017) Storage (Acquired Mar. 2018) • Critical generation resource for Hawaii Island • Large solar plus battery storage systems at 5 • S
Slide 64: 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 65: Forward-looking statement risk factors
• 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 66: Forward-looking statement risk factors (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 67: 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 68: Reconciliation of GAAP to non-GAAP measures
RECONCILIATION OF GAAP! TO NON-GAAP MEASURES Hawaiian Electric Industries, Inc. and Subsidiaries (HED) Unaudited Twelve months ended Sept 30 ($ in millions) 2019 2018 HEI CONSOLIDATED NET INCOME GAAP (as reported) $ 201.2 $ 184.6 Excluding special items (after-tax): One-time non-executive bank emplo
Slide 69: Reconciliation of GAAP to non-GAAP measures
RECONCILIATION OF GAAP! TO NON-GAAP MEASURES Hawaiian Electric Company, Inc. (Hawaiian Electric) and Subsidiaries Unaudited Twelve months ended Sept 30 (S in millions) 2019 2018 HAWAIIAN ELECTRIC CONSOLIDATED NET INCOME GAAP (as reported) s 1468 $ 133.7 Excluding special items (after-tax): Federal t
Slide 70: Corporate Headquarters and Investor Inquiries
Institutional Investor Corporate Headquarters and Securities Analyst Inquiries Hawaiian Electric Industries, Inc. Please direct inquiries to: 1001 Bishop Street, Suite 2900 Julie Smolinski Honolulu, Hawaii 96813 Director, Investor Relations & Strategic Planning Telephone: 808-543-5662 Telephone: 808
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