Hawaiian Electric Industries · NYSE:HE

Hawaiian Electric Industries — Q3 2017 Earnings Presentation

52 slides from Hawaiian Electric Industries's earnings presentation, Nov 2, 2017

  1. Slide 1: 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

  2. Slide 2: Cautionary Note Regarding Forward-Looking Statements (continued)

    • the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid; • the growing risk that energy pro

  3. Slide 3: Third Quarter 2017 Financial Results and Outlook

    Hawaiian Electric Industries, Inc. Third Quarter 2017 Financial Results and Outlook November 2, 2017

  4. Slide 4: YTD 2017 Highlights

    YTD 2017 Highlights  Third quarter financial results in line with full year expectations  Hawaii Electric Light 2016 Test Year  Strong financial performance Interim D&O  Higher net interest income  Filed Maui Electric 2018 Test Year  Strong deposit growth Rate Case  Improving efficiency and c

  5. Slide 5: Foundational Framework for Hawaii's Renewable Future

    Foundational Framework for Hawaii’s Renewable Future  Comprehensive & flexible roadmap for Hawaii’s 100% renewable future Power Supply  Details a proposed five-year action plan through 2021 Improvement Plan (PSIP) Update  Accepted July 2017 (Docket No. 2014-0183) Grid Modernization  Tangible vis

  6. Slide 6: Rates and Recovery Mechanism Developments

    Rates and Recovery Mechanism Developments  Interim Decision and Order (D&O) effective Aug. 31, 2017 Hawaii Electric Light Rate increase of 3.4% ($9.9 million) Allowed ROE of 9.5% 2016 Rate Case  Sept. 20, 2017: Filed briefs supporting a 9.75% ROE for the final award (Docket No. 2015-0170)  No sta

  7. Slide 7: Residential Solar and Other Customer Developments

    Residential Solar and Other Customer Developments  Authorizes activation of new “advanced inverter” functions in PV and storage systems New  Advanced inverters provide support to the electric grid during different types of grid disturbances “Advanced Inverter”  Activating these functions in the n

  8. Slide 8: Hawaii's economy continues to grow

    Hawaii’s economy continues to grow Year-over-year September 2017 YTD September 2017 change Tourism Arrivals +5.1% +4.9% Expenditures +1.9% +7.1% Unemployment • September 2017 – Hawaii: 2.5%; U.S.: 4.2% • Oahu sales volume YTD September 2017 compared to the prior year: • Oahu single family homes: up

  9. Slide 9: Consolidated 3Q Earnings – Net Income

    Consolidated 3Q Earnings – Net Income ($ millions) GAAP Net Income HC Non-Core Adjustments Core Net Income $127.1 (merger/spin-related) $47.0 $15.1 $60.1 $63.3 $60.1 $47.5 $47.0 $47.5 $65.1 $63.8 $17.6 * $15.1 $17.6 $1.2* ($5.0) ($5.0) 3Q16 3Q17 3Q16 3Q17 3Q16 3Q17 Utility Bank Holding Co. & Other *

  10. Slide 10: Consolidated 3Q Earnings – EPS

    Consolidated 3Q Earnings – EPS ($ per share) GAAP EPS (Diluted) HC Non-Core Adjustments Core EPS (Diluted) Per Share (Diluted) (merger/spin-related) $1.17 $0.43 $0.14 $0.55 $0.58 $0.55 $0.44 $0.43 $0.44 $0.60 $0.59 $0.16 $0.14 $0.16 ($0.05) $0.01* ($0.05) 3Q16 3Q17 3Q16 3Q17 3Q16 3Q17 Utility Bank H

  11. Slide 11: HEI ROE

    HEI ROE Consolidated HEI ROE Twelve Months Ended September 30 12.3% (GAAP) 9.5% 8.5% (Core) (GAAP) 2016 2017 Core Earnings Adjustment GAAP 2016 2017 Utility 8.1% 7.2% Bank 9.8% 11.2% See the reconciliation of GAAP to Non-GAAP (Core) measures in this presentation. Note: All ROEs calculated using net

  12. Slide 12: 3Q17 utility financial highlights

    3Q17 utility financial highlights (in millions) 3Q17 $60 Utility net income Key utility core earnings drivers, after-tax vs fav/(unfav) 3Q16 Higher RAM revenues 2 $40 Hawaii Electric Light 2016 interim rate increase <1 Net revenues* 2 O&M, excluding net income neutral items (4) $47.0 $47.5 $20 Allow

  13. Slide 13: 3Q17 bank financial highlights

    3Q17 bank financial highlights (in millions) Bank net income Key bank earnings drivers, after-tax 3Q17 vs 3Q17 vs fav/(unfav) 2Q17 3Q16 Net interest income -- 3 Provision for loan losses 1 3 $16.7 $17.6 $15.1 Noninterest income (1) (2) Noninterest expense -- (1) 3Q16 2Q17 3Q17 11

  14. Slide 14: Bank 3Q17 performance

    Bank 3Q17 performance Return on assets (%) Net interest margin (%) 1.21 ~3.5 - 3.6 3.69 3.68 3.55 1.07 1.02 1.05 3.47 >0.90 Original ASB ASB Peers YTD Original ASB ASB Peers YTD Target 3Q17 YTD Target 3Q17 YTD ASB Target ASB QTD Annualized ASB YTD Annualized Peers1 High Performing Peers2 Source for

  15. Slide 15: Net interest margin

    Net interest margin 4.50 Asset yield % 4.00 4.00 Net interest margin (NIM) % 3.50 3.80 3.80 3.88 3.88 3.88 3.00 3.50 3Q16 4Q16 1Q17 2Q17 3Q17 0.80 3.68 3.68 3.69 Liability cost % 3.57 3.59 0.40 3.00 3Q16 4Q16 1Q17 2Q17 3Q17 0.24 0.22 0.20 0.21 0.20 0.00 3Q16 4Q16 1Q17 2Q17 3Q17 1 2 ASB Peers High Pe

  16. Slide 16: Revenue growth driven primarily by net interest income

    Revenue growth driven primarily by net interest income ($ in millions) Total loans $4,740 $4,748 $4,678 Net interest income and noninterest income $70.4 $72.2 $71.4 $18.5 $16.2 $15.2 3Q16 2Q17 3Q17 $51.9 $56.0 $56.2 Total deposits 3Q16 2Q17 3Q17 $5,724 $5,752 $5,381 Net interest income Noninterest i

  17. Slide 17: Credit quality improving: significant reductions in nonaccrual loans

    Credit quality improving: significant reductions in nonaccrual loans ($ in millions) Net charge-offs1 Nonaccrual loans2 1.11% 0.40% 0.53% 0.51% 0.47% 0.49% 0.43% 0.41% 0.44% 0.50% 0.29% 0.32% 0.49% 0.49% 0.45% 0.40% $52.6 0.20% 0.21% 0.11% 0.04% 0.06% 0.06% 0.08% 0.06% 0.05% 0.04% $5.7 $4.7 $23.3 $2

  18. Slide 18: Quality balance sheet

    Quality balance sheet  Overall loan-to-deposit ratio of 81%  100% of ASB loans funded with low-cost core deposits Peer Banks1 ASB 06/30/17 (%) 09/30/17 (%) Core Deposits Loans Loans 62 70 Core Deposits 72 76  Leverage ratio: 8.7%  Tangible common equity to tangible assets: 8.0%  Total capital r

  19. Slide 19: Clean energy and reliability projects drive capital investments

    Clean energy and reliability projects drive capital investments (in millions) Year End Rate Base Forecast $3,500 = Top of Range $3,300 = Bottom of Range $3,250 $3,150 $2,940 $3,000 $3,200 $3,070 $2,750 $2,910 $2,833 $2,500 2016 2017 2018 2019 2 2016 2017 2018 2019 Rate Base Growth 3% 3-4% 6-8% 3-6%

  20. Slide 20: HEI 2017 EPS guidance

    HEI 2017 EPS guidance (as of November 2, 2017) HEI EPS: $1.55 - $1.70 per share No new equity issuances through 2018 Utility EPS: $1.17 - $1.27 Bank EPS: $0.58 - $0.60 Key Assumptions: Key Assumptions:  Decoupling model: March 2015 Decision & Order  Net interest income: mid-single digit asset grow

  21. Slide 21: HEI remains a strong company well-positioned to achieve its goals

     HEI remains a strong company that is well-positioned to achieve its goals of providing long-term value for our customers, community, employees and shareholders  Hawaiian Electric Company  Expanding our renewable energy portfolio to reach 100% RPS goal by 2045  Modernizing grid to increase resil

  22. Slide 22: Appendices

    Appendices 20

  23. Slide 23: Utility ROE

    Utility ROE Consolidated Utility ROE Twelve Months Ended September 30, 8.2% (core) 8.1% (GAAP) 7.2% (GAAP) 2016 2017 GAAP Consolidated Utility Hawaiian Electric Hawaii Electric Light Maui Electric 2016 8.1% 7.9% 8.5% 8.4% 2017 7.2% 7.3% 6.5% 7.0% 1 Allowed 9.8% 10.0% 9.5% 9.0% Note: Last base revenu

  24. Slide 24: 2016 consolidated utility ROE lag

    2016 consolidated utility ROE lag 0.2 0.2 0.1 0.4 0.2 0.7 0.2 9.8 9.3 0.5 9.3 8.1 1 2 3 4 5 6 7 8 Allowed Non-recoverable Short term RAM Revenue ROE less Plant Adds O&M in excess No return on Interest rate Others, net Actual ROE items (ie. interest accrual delay items 1, 2, 3 Over of test pension as

  25. Slide 25: Power supply improvement plan (PSIP) update

    Power supply improvement plan (PSIP) update Hawaii PUC Docket No. 2014-0183 (closed) Accepted on July 14, 2017  Accelerates achievement of key milestones, including reaching a 48% Renewable Portfolio Standard1 by 2020; mandated goal is 30%  Anticipates reaching 100% Renewable Portfolio Standard1 b

  26. Slide 26: Grid Modernization Strategy update

    Grid Modernization Strategy update Hawaii PUC Docket No. 2017-0226  Final grid modernization strategy filed with PUC in August 2017  Customer and stakeholder engagement and interview process used to define grid modernization goals  Enables grid to interconnect DER levels consistent with the accep

  27. Slide 27: Maui Electric Rate Case: 2018 Test Year

    Maui Electric Rate Case: 2018 Test Year Hawaii PUC Docket No. 2017-0150 Application (10/12/17) Amount requested $30.1M (9.3% increase over revenues at current effective rates) 1 Deprec. & amort. expenses $24.6M Return on average common equity 10.60% with mechanisms Common equity capitalization (%) 5

  28. Slide 28: Hawaiian Electric Rate Case: 2017 Test Year

    Hawaiian Electric Rate Case: 2017 Test Year Hawaii PUC Docket No. 2016-0328 Application (12/16/16) Amount requested $106.4M (6.9% increase over revenues at current effective rates) 1 Deprec. & amort. expenses $130.7M Return on average common equity 10.60% with mechanisms Common equity capitalization

  29. Slide 29: Hawaii Electric Light Rate Case: 2016 Test Year

    Hawaii Electric Light Rate Case: 2016 Test Year Hawaii PUC Docket No. 2015-0170 Application Settlement Interim D&O (9/19/16) (7/11/17) (eff. 8/31/17) Approximately $9.9M (at 9.5% ROE)-$11.1M (at Approximately $9.9M (at $19.3M Amount requested (6.5% increase over revenues at 9.75% ROE)2 9.5% ROE)3 cu

  30. Slide 30: Hawaiian Electric Rate Case: 2011 Test Year

    Hawaiian Electric Rate Case: 2011 Test Year Hawaii PUC Docket No. 2010-0080 Application Interim D&O Adjusted Interim Final D&O (7/30/10) (eff.7/26/11) D&O (eff.5/21/12) (eff.9/1/12) Base Request $74M (4.3% increase) $53.2M2 $58.8M2,3 $58.1M4 New Programs $40M (3.1% increase) (3.4% increase) (3.4% in

  31. Slide 31: Maui Electric Rate Case: 2012 Test Year

    Maui Electric Rate Case: 2012 Test Year Hawaii PUC Docket No. 2011-0092 Application Interim D&O Final D&O (7/22/11) (eff.6/1/12) (eff.8/1/13) $27.5M1 $13.1M3 $5.3M4 Base Request (6.7% increase) (3.2% increase) (1.3% increase) $19.8M $19.7M $19.7M Depr. & amort. expenses without mechanisms with mecha

  32. Slide 32: RAM Accrual Schedules

    RAM Accrual Schedules Current Calendar Year Subsequent Calendar Year J F M A M J J A S O N D J F M A M J J A S O N D Normal RAM Prior Year RAM Current Year RAM Subsequent Year RAM Accrual Schedule 1 Calendar Year 2017 Calendar Year 2018 J F M A M J J A S O N D J F M A M J J A S O N D 2018 RAM Oahu S

  33. Slide 33: Energy Cost ($/kWh)

    Renewable energy can be cost competitive in Hawaii depending on oil price volatility Utility fossil fuel energy cost Contracted renewable energy cost Significant reduction in cost of utilty-scale Subject to volatile oil prices renewables* 0.40 2016+ PPAs Pre-2016 PPAs Proposed and Approved 0.35 Oil

  34. Slide 34: Hawaii's oil situation

    Hawaii’s oil situation Low Sulfur Fuel Oil vs. Crude Oil Price per bbl September 2011 to September 2017 $145 $125 HAWAII OIL PRICES HAWAII OIL PRICES HAWAII OIL PRICES $105 HAWAII OIL PRICES HAWAII OIL PRICES $85 HAWAII OIL PRICES $65 CRUDE OIL PRICES CRUDE OIL PRICES $45 CRUDE OIL PRICES CRUDE OIL

  35. Slide 35: 2017 Impact of Loss of January RAM Revenue Recognition Method

    2017 Impact of Loss of January 1 RAM Revenue Recognition Method Calendar Year Method – Beginning January 2017 • Background: Per the Settlement Agreement with the 10 $40M RAM Revenues Consumer Advocate approved by the Public Utilities 8 9 9 9 9 9 9 Commission in 2013, Hawaiian Electric was allowed to

  36. Slide 36: National leader in renewable energy integration and distributed generation

    National leader in renewable energy integration and distributed generation Rapid growth of renewables and Committed to achieving Hawaii’s 100% distributed generation renewable goal by 2045 2016 Renewable Portfolio Standard1 MW 1,200 Consolidated Oahu Maui County Hawaii Island 1,000 26% 19% 37% 54% 8

  37. Slide 37: Utility regulatory mechanisms provide financial stability during renewable transition

    Utility regulatory mechanisms provide financial stability during renewable transition Mechanisms What they do Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last rate case (revenues not linked to kWh sales) Revenue adjustment Annually adjusts revenue

  38. Slide 38: Components of decoupling

    Components of decoupling Hawaii PUC Docket No. 2008 - 0274 Hawaii PUC Docket No. for the decoupling review: 2013 - 0141 Components 1. Sales Delinks utility revenues from electricity usage decoupling  GAAP revenue = revenue approved in the last rate case (interim or final) via a Revenue Balancing 

  39. Slide 39: Components of decoupling

    Components of decoupling Hawaii PUC Docket No. 2008 - 0274 Hawaii PUC Docket No. for the decoupling review: 2013 - 0141 Components 2. RAM Revenue Lesser of: Adjustment  2a - RAM Revenue Adjustment based on the RAM provisions in place prior to Order No. 32735** -or- Allowed  2b - RAM Revenue Adjust

  40. Slide 40: Components of decoupling

    Components of decoupling Hawaii PUC Docket No. 2008 - 0274 Hawaii PUC Docket No. for the decoupling review: 2013 - 0141 Components 2a. RAM Revenue RAM for Rate Base – Component 2 Adjustment  Change in rate base compared to test year levels in last rate case, for certain items including annual Deter

  41. Slide 41: Components of decoupling

    Components of decoupling Hawaii PUC Docket No. 2008 - 0274 Hawaii PUC Docket No. For the decoupling review: 2013 - 0141 Components 2b. RAM Revenue Cumulative RAM for 2017 RAM Revenue Adjustment – Adjustment  Prior year RAM Cap Target Revenues times GDPPI (2.0% for 2017) + prior year RAM Cap Cap Rev

  42. Slide 42: Oil is the primary driver of rates in Hawaii

    Oil is the primary driver of rates in Hawaii Fuel Breakdown of Hawaiian Electric Rates 1 Purchased Energy Fossil Fuels Typical Revenue Taxes 40 Residential Purchased Energy Renewables Bill PPAC Expenses December All Other Typical 2012 35 $163.64 Residential Bill 31.8 31.5 Typical October 30.9 Reside

  43. Slide 43: Plant Additions – Baseline by company & Consolidated Major Projects

    Plant Additions – Baseline by company & Consolidated Major Projects (in millions) Major projects = PUC approved projects > $2.5 million $500 5-year (2012-2016) historical average baseline projects: $390 HE: $229 $371 $350 $21 HL: 48 $55 $33 ME: 42 $26 $299 $50 $2 $283 Total $319 $48 $59 $28 $13 $46

  44. Slide 44: Low-risk loan mix

    Low-risk loan mix Total loans at 09/30/17 - $4.7B1 Commercial construction $128 (3%) Commercial real estate $746 (16%) Commercial markets $590 (13%) Residential 1-4 $2,066 (44%) Residential Construction & Lot Loans $32 (<1%) Consumer $211 (5%) HELOC $905 (19%) Note: $ in millions, unless otherwise n

  45. Slide 45: ASB peer group – 2017

    ASB peer group – 2017 * 1st Source Corporation SRCE First Bancorp FBNC Opus Bank OPB Ameris Bancorp ABCB First Busey Corporation BUSE * Oritani Financial Corp. ORIT BancFirst Corporation BANF First Commonwealth Financial Corporation FCF Pacific Premier Bancorp, Inc. PPBI Berkshire Hills Bancorp, Inc

  46. Slide 46: HEI financing outlook 2017

    HEI financing outlook 2017* (as of November 2, 2017) 2017 holding company sources & uses of capital (in millions) ~$305M ~$305M Other HC Exp. $15  Expect to maintain strong capital structure above 50% consolidated common equity Debt Maturities to total capitalization in 2017 $125 Debt Issuance $185

  47. Slide 47: Visitor expenditures

    YTD Hawaii visitor arrivals up 4.9% and visitor expenditures up 7.1% 1400 30.0% Year vs. Year % Change Year vs. Year % Change 1200 15.0% Visitor arrivals (in thousands) 1000 0.0% 800 Monthly Visitor Arrivals -15.0% 600 -30.0% Yr-Yr% Change Visitor Arrivals 400 -45.0% Sep-14 Sep-15 Sep-16 Sep-17 2350

  48. Slide 48: Hawaii unemployment rate remains low at 2.5%

    Hawaii unemployment rate remains low at 2.5% 12 Seasonally adjusted 8 Hawaii U.S. US: 4.2% 4 Hawai‘i: 2.5% 0 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 12 Not seasonally Not seasonally adjusted Honolulu County adjusted 8 Maui County Hawaii County: 2.8% Hawaii County

  49. Slide 49: Hawaii real estate (September 2008 – September 2017)

    Hawaii real estate (September 2008 – September 2017) Oahu Number of Sales and Median Sales Price $1,000,000 400 $800,000 Number of sales 300 Median price $600,000 200 $400,000 100 $200,000 $0 0 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Number of Sales Median Sales Price M

  50. Slide 50: Hawaiian Electric Industries, Inc.

    Hawaiian Electric Industries, Inc.

  51. Slide 51: 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 to evaluate the performance of HEI and the utility. Management believes these non-GAAP measures provide useful information and are a better indicator of the comp

  52. Slide 52: Reconciliation of GAAP to Non-GAAP Measures

    RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES Hawaiian Electric Company, Inc. and Subsidiaries Unaudited Three months ended Nine months ended September 30 September 30 ($ in millions) 2017 2016 2017 2016 HAWAIIAN ELECTRIC CONSOLIDATED COSTS RELATED TO THE TERMINATED MERGER WITH NEXTERA ENERGY Pre-tax

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