Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Investor Presentation (March 2023)
51 slides from Hawaiian Electric Industries's investor presentation, March 2023
Slide 1: Investor Presentation March 2023
Investor Presentation March 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: At Inflection Point – Driven by Clean Energy Transition
THE HE I S TORY 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
Slide 4: HEI – Leading in Hawaii
AT A GLA NC E HEI – Leading in Hawaii 2022 Earnings Contribution 1 Key Facts Utility Bank Publicly traded company in Hawaii2 #1 Market capitalization3 $4.6B 70% 30% Dividend yield3 3.5% Percent of population served with electricity 95% Utility carbon reduction goal by 20304 70% Bank assets $9.5B Sus
Slide 5: Uniquely Positioned – Growth Potential Under a New Utility Regulatory Framework
Uniquely Positioned – Growth Potential Under a New Utility Regulatory Framework, Combined With Stable Bank Cash Flow Growth Potential Enhanced Under High Quality Bank Provides New Utility Regulatory Framework Stable Cash Flow Framework enhances opportunity for steady earnings growth + Low risk profi
Slide 6: Aligned with the Success of Hawaii in a Virtuous Cycle
Aligned with the Success of Hawaii in a Virtuous Cycle Aligned with Hawaii’s Engage with communities, 1 culture of sustainability 2 employees and regulators Success – tied to a 5 thriving Hawaii 3 Set ambitious goals Execute and deliver results 4 for all stakeholders 6
Slide 7: ESG is Deeply Embedded in Our Core Strategies
ESG is Deeply Embedded in Our Core Strategies Core Focus • Leading decarbonization and • Full-service community bank • Sustainable infrastructure clean energy transition with providing superior customer investment focus on affordability, reliability, experience and advancing resilience and equity ec
Slide 8: Stable Long-term Performance Record and Trajectory
Stable Long-term Performance Record and Trajectory Net Income ($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 (%) Rising interest rate environment, local 9.8% 10.4%
Slide 9: At Inflection Point – Driven by Clean Energy Transition
THE HE I S TORY 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
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 Standard (RPS) 2005 Emission Level 40% 2030 Goal -12% 38%3 39%3 -22%2 35% Under new RPS calculation effective 7/1/22, 30% 2020 Goal 2022 RPS would have been 31.8% 23% 15% 2015 Goal -70% 2019 2021 203
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 1/2023 ($/kWh) Utility Fossil Fuel 2016+ PPAs Contracted Renewable Energy Cost Energy Cost (Proposed and Approved) $0.30 Fossil Fuel Cost $0.23 to $0.27 $0.20 $0.12 to $0.16 $0.10 $0.08 to $0.11 $0.08 to $0.1
Slide 15: At Inflection Point – Driven by Clean Energy Transition
THE HE I S TORY 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
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 ($6.8 million) annually Call Center Performance +$1.4 million / ($1.4 million) annually Pre-PBR Fossil Fuel Cost Risk Sharing +$3.7 million / ($3.7 million) annually West Loch PV Based on under/overproductio
Slide 19: At Inflection Point – Driven by Clean Energy Transition
THE HE I S TORY 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
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 Best-in-class community balance Sheet loan portfolio cost of funds bank 100% ~$9.5B of loans funded by low-cost core deposits 83% ~38bps 1 total assets of loan portfolio very low cost of funds
Slide 21: Strong Cash Flow Generation
Strong Cash Flow Generation Bank Dividends to HEI ($M) $59 $56 $50 ~$50 2 $42 $36 $38 1 $30 $31 2015 2016 2017 2018 2019 2020 2021 2022 2023E 1. Lower dividend in 2020 due to pandemic uncertainty. 2. Lower dividend in 2022 due to strong loan growth (>15%), which requires the bank to retain more capi
Slide 22: Clear Priorities to Drive Continued Steady Growth in Bank Earnings
Clear Priorities to Drive Continued Steady Growth in Bank Earnings 1 2 3 4 5 Long-Term Meet customer Optimize Attract and Profitable Invest in branch network Drive ESG expectations + technology + and operating + retain diverse + progress Growth in a digital world talent model S U S T A I N A B I L I
Slide 23: At Inflection Point – Driven by Clean Energy Transition
THE HE I S TORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead
Slide 24: Positive Near-term Factors Set Stage for Sustained Long-Term Growth
Positive Near-term Factors Set Stage for Sustained Long-Term Growth • Progress on utility climate goals • Progress digital transformation while prudently • Optimize O&M and capex within ARA controlling costs • Earn additional revenues for separately- • Grow loan portfolio, particularly commercial re
Slide 25: Capex Set to Grow, Driven by Renewables and Reliability
Capex Set to Grow, Driven by Renewables and Reliability Capital Expenditures Forecast ($ Millions) $330-$540 Pending PUC $370-$410 $320-$420 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 26: 2023 EPS Guidance – Consistent Growth from Utility and Bank
2023 EPS Guidance1 – Consistent Growth from Utility and Bank $1.75-$1.85 Key Assumptions: $2.15-$2.35 ➢ Full recovery of COVID-19 $0.75-$0.85 Key Assumptions: expenses ➢ NIM: 3.00% – 3.15% ➢ No fuel cost risk sharing ➢ Provision exp.: $0M – penalty or reward assumed $10M Additional Assumptions: ➢ Ca
Slide 27: At Inflection Point – Driven by Clean Energy Transition
THE HE I S TORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead
Slide 28: Appendix
Appendix —_—e
Slide 29: Our Senior Leadership Team
Our Senior Leadership Team Scott Seu Shelee Kimura Ann Teranishi Paul Ito Kurt Murao HEI Hawaiian Electric American Savings Bank HEI HEI President & CEO President & CEO President & CEO EVP, Chief Financial Officer & EVP, General Counsel, Treasurer Chief Administrative Officer & Corporate Secretary •
Slide 30: Resilient Hawaii Economy
Resilient Hawaii Economy Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals (In thousands ) Visitor Arrivals Unemployment Rate 2019 2021 2022 12,000 14 % Full year 2022: 9.2M Dec. 2022: 3.2% 1,200,000 10,000 12 10 1,000,000 8,000 8 800,000 6,000 6 600,000 4,000 4 400,000 2,000 2 200,000 -
Slide 31: HEI Financing Outlook 2023
HEI Financing Outlook 20231 • Both bank and utility remain net cash 2023 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2023 ~$200M ~$200M • Balance sheet remains investment grade HC Expense ~$40 • Two investment grade subsidiaries:
Slide 32: Solid 2022 Financial Performance
Solid 2022 Financial Performance Net Income ($M) EPS (GAAP) Consolidated LTM ROE $246.2 $241.1 1 $2.25 $2.201 10.4% 10.5% $101.2 $80.0 $0.92 $0.73 Full year $177.6 $188.9 $1.62 $1.72 ($32.7) ($27.8) ($0.30) ($0.25) $54.5 $57.3 $0.50 $0.52 $22.1 $17.9 $0.20 $0.16 Q4 $42.0 $48.6 $0.38 $0.44 2021 2022
Slide 33: 2022 Financial Highlights
2022 Financial Highlights $0.03 $0.02 $0.01 $0.11 $0.12 $0.19 $0.06 $0.23 $0.06 $0.05 $0.04 $0.04 $0.01 $2.25 $2.20 Total: ~($0.19) Total: ~$0.10 2021 EPS Net interest Provision Noninterest Noninterest ARA Other fee MPIR AFUDC O&M Deprec Interest & HoldCo & Gain on sale 2022 EPS income expense incom
Slide 34: 2023 Utility Guidance Drivers
2023 Utility Guidance Drivers • 3.68% inflationary increase in 2023 (Blue Chip GDPPI forecast less 22 basis point customer dividend) ARA Revenues • Net $33.5 million in incremental revenues for 2023 • $26.2 million in MPIR/EPRM revenues Separate • Further upside potential of $1 million for PUC-appro
Slide 35: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment $330-$540 Capital Expenditures Forecast ($ in millions) Low range includes baseline ARA capital $370-$410 $320-$420 Pending Separate Approval and approved separately recovered $357 Recovery projects. Approved High range includes separat
Slide 36: Utility LTM ROE
Utility LTM ROE As of 12/31/22 9.5% 0.3% 9.2% 0.5% 0.3% 0.2% 8.2% Allowed Non-recoverable ROE less Actual O&M, Fuel Risk Others, Actual 2022 ROE ROE items (i.e., incentive Structural Depreciation and Sharing and net compensation, Items Return on Higher Fuel advertising, charitable Inventory Rate Bas
Slide 37: PBR Framework – A Closer Look
PBR Framework – A Closer Look Mechanism Before – Pre PBR After – Post PBR Term of rate plan 3 years 5 years Cost trackers In place Remain in place Slight modification – Revenue Adjustment allowance tied to inflation with In place Mechanism (RAM) adjustments for customer dividend and other factors Ex
Slide 38: Mechanisms to Incentivize Achievement of Key Outcomes
Mechanisms to Incentivize Achievement of Key Outcomes PIMs Description T&D SAIDI and SAIFI Incentivizes T&D-caused reliability. Targets based on utility’s historical 10-year average with a deadband of one standard deviation Call Center Penalizes or rewards call center performance based on percentage
Slide 39: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2022 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2023-2025) $8 $6 $4 - $7 Forecast based on $4 $3 - $6 December 2022 assumptions for renewable $2 project commercial $1 - $3 operation dates and total $0 $0 generation 2022 2023 2024
Slide 40: 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 41: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 PUC approved final PIM tariffs and held workshop to discuss upcoming Awaiting PUC guidance on next steps for PBR Proceeding to evolve regulatory framework to better al
Slide 42: Status of Key Open Dockets, Continued
Status of Key Open Dockets, Continued Subject and Description Docket # Latest Development Next Milestone DER Policies 2019-0323 Oct. 2022 D&Os (1) established an Advanced Rate Design (ARD) Utility to file updated DER Program Transition Plan Investigates Distributed Energy Resources (DER) as they rel
Slide 43: 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 44: 2023 Bank Guidance Drivers
2023 Bank Guidance Drivers Stable Net Interest Margin and Healthy Loan Pipeline • Healthy loan pipeline, with growth returning to more normal levels in 2023 • Provision expectations reflect strong credit quality, as well as economic outlook and loan growth expectations • Further Fed fund rate hikes
Slide 45: Net Interest Income Grew with Earning Asset Growth and Higher Yields
Net Interest Income Grew with Earning Asset Growth and Higher Yields Yield on Earning Assets (%) Cost of Funds (%) Net Interest Margin1 (%) 3.09 3.28 2.85 2.96 2.91 2.89 2.84 0.38 2.79 2.79 0.13 0.05 4Q21 3Q22 4Q22 4Q21 3Q22 4Q22 4Q21 1Q22 2Q22 3Q22 4Q22 Full Year Actual 3Q22 Reported NIM 2.96% Rate
Slide 46: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M) $4,563 ASB has more than $194M of excess equity above the “well capitalized” level Capital Ratio Tier 1 leverage $3,299 $2,493 As of 12/31/22 7.78% $1,640 “Well capitalized” 5.00% $2,049 $1,633 Minimum requirements 4.00% 12/31/2
Slide 47: 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 Industrial Syndications Commercial 7.6% 5.4% Personal ✓ ~83% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 56% Constructi
Slide 48: Quality Bank Balance Sheet and Loan Portfolio
Quality Bank Balance Sheet and Loan Portfolio ASB1 Investment Portfolio Investment Portfolio Average yield on earning assets 3.28% Sectors Ratings Average cost of funds 0.38% Return on avg. equity 15.7% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 62% Core Deposits 79%
Slide 49: 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 50: 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 51: 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 (March 2023) on 6ix