Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Investor Presentation (January 2023)
46 slides from Hawaiian Electric Industries's investor presentation, Jan 13, 2023
Slide 1: Investor Presentation January 2023
Investor Presentation January 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 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 LTM Earnings Contribution1 Key Facts Utility Bank Publicly traded company in Hawaii2 #1 Market capitalization3 $4.6B 68% 32% Dividend yield3 3.3% Percent of population served with electricity 95% Utility carbon reduction goal by 20304 70% Bank assets $9.3B Su
Slide 5: Uniquely Positioned – Growth Potential Under New Utility Regulatory Framework
Uniquely Positioned – Growth Potential Under New Utility Regulatory Framework, Combined With Stable Bank Cash Flow Growth Potential Enhanced Under High Quality Bank Provides New Utility Regulatory Framework Stable Cash Flow Framework enhances opportunity for steady earnings growth + Low risk profile
Slide 6: Aligned with the Success of Hawaii in a Virtuous Cycle
Aligned with the Success of Hawaii in a Virtuous Cycle Aligned with Hawaii’s Engage with communities, 1 culture of sustainability 2 employees and regulators Success – tied to a 5 thriving Hawaii 3 Set ambitious goals Execute and deliver results 4 for all stakeholders 6
Slide 7: ESG is Deeply Embedded in Our Core Strategies
ESG is Deeply Embedded in Our Core Strategies Core Focus • Leading decarbonization and • Full-service community bank • Sustainable infrastructure clean energy transition with providing superior customer investment focus on affordability, reliability, experience and advancing resilience and equity ec
Slide 8: Stable Long-term Performance Record and Trajectory
Stable Long-term Performance Record and Trajectory Net Income ($M) Positive Dynamics $246 Electric Utility $202 $218 $198 $165 New utility regulatory environment Investment in clean, resilient grid 2017 2018 2019 2020 1 20212 Bank ROE (%) Rising interest rate environment, local 9.8% 10.4% economy th
Slide 9: 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 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: On Track to Meet or Exceed Our Goals
On Track to Meet or Exceed Our Goals Carbon Emission Reduction1 (vs 2005) Renewable Portfolio Standard (RPS) 2005 Emission Level 40% 2030 Goal -12% 38%3 -22%2 35% Under new RPS calculation effective 7/1/22, 2021 RPS 30% 2020 Goal would have been 31% 23% 15% 2015 Goal -70% 2019 2022 2030 2015 2020 20
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 • Growing rooftop solar by 55% • Increasin
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 11/2022 ($/kWh) Utility Fossil Fuel 2016+ PPAs Contracted Renewable Energy Cost Energy Cost (Proposed and Approved) $0.30 Fossil Fuel Cost $0.23 to $0.29 $0.20 $0.12 to $0.16 $0.10 $0.08 to $0.11 $0.08 to $0.
Slide 15: 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 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) Call Center Performance +$1.4 million / ($1.4 million) Pre-PBR Fossil Fuel Cost Risk Sharing +$3.7 million / ($3.7 million) West Loch PV Based on under/overproduction Heat Rate NA Renewable RF
Slide 19: 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 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 Asset sensitive Best-in-class community balance Sheet loan portfolio balance sheet cost of funds bank 100% ~$9B of loans funded by low-cost core deposits 84% ~$1.2M ~13bps 1 total assets of loa
Slide 21: Strong Cash Flow Generation
Strong Cash Flow Generation Bank Dividends to HEI ($M) $59 $56 $50 2 $38 ~$40 $36 1 $30 $31 2015 2016 2017 2018 2019 2020 2021 2022E 1. Lower dividend in 2020 due to pandemic uncertainty. 21 2. As of November 7, 2022 we expect the bank to retain capital to support strong loan growth, and provide ~$4
Slide 22: Clear Priorities to Drive Continued Steady Growth in Bank Earnings
Clear Priorities to Drive Continued Steady Growth in Bank Earnings 1 2 3 4 5 Long-Term Meet customer Optimize Attract and Profitable Invest in branch network Drive ESG expectations + technology + and operating + retain diverse + progress Growth in a digital world talent model S U S T A I N A B I L I
Slide 23: At Inflection Point – Driven by Clean Energy Transition
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 24: Positive Near-term Factors Set Stage for Sustained Long-Term Growth
Positive Near-term Factors Set Stage for Sustained Long-Term Growth • Progress on utility climate goals • Progress digital transformation while prudently • Optimize O&M and capex within ARA controlling costs • Earn additional revenues for separately- • Grow loan portfolio, particularly commercial re
Slide 25: Capex Set to Grow, Driven by Renewables and Reliability
Capex Set to Grow, Driven by Renewables and Reliability Capital Expenditures Forecast ($ Millions) $320-$420 $370-$410 $350-$375 Pending PUC Separate Approval Recovery $315 Approved Expect to invest ~$2B over next ARA 5 years Approved Recovery 2021A 2022E 2023E 2024E Note: Capital expenditure figure
Slide 26: 2022 EPS Guidance – Utility Strength and Bank Earnings Reset
2022 EPS Guidance1 – Utility Strength and Bank Earnings Reset Provide Base for Future Growth $1.68-$1.78 $2.08-$2.20 Key Assumptions: $0.72-$0.76 Additional Assumptions: Key Assumptions: ➢ ➢ Full recovery of COVID-19 Holdco and other expenses ➢ NIM: 2.90 - 2.95% segment net loss of $0.28 - $0.30 ➢ C
Slide 27: At Inflection Point – Driven by Clean Energy Transition
THE HEI STORY At Inflection Point – Driven by Clean Energy Transition and New Regulatory Environment 1 2 3 4 5 A different kind Electric utility Attractive new Advantage of Clear of company leader in clean performance based low risk, cash roadmap energy transition regulatory (PBR) generating ahead e
Slide 28: Appendix
Appendix —_—e
Slide 29: Our Senior Leadership Team
Our Senior Leadership Team Scott Seu Shelee Kimura Ann Teranishi Paul Ito Kurt Murao HEI Hawaiian Electric American Savings Bank HEI HEI President & CEO President & CEO President & CEO EVP, Chief Financial Officer EVP, General Counsel, Chief Administrative Officer & Corporate Secretary • President &
Slide 30: Resilient Hawaii Economy
Resilient Hawaii Economy Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals (In thousands) Visitor Arrivals Unemployment Rate 2019 2021 2022 12,000 14 % YTD Nov. 2022: 8.4M Nov. 2022: 3.3% 12 1,200,000 10,000 10 1,000,000 8,000 8 800,000 6,000 6 600,000 4,000 4 400,000 2,000 2 200,000 - 0
Slide 31: HEI Financing Outlook 2022
HEI Financing Outlook 20221 • Both bank and utility remain net cash 2022 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2022 ~$200M ~$200M • Balance sheet remains investment grade HC Expense ~$30 Debt Issuance ~$35 • Two investment g
Slide 32: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment Capital Expenditures Forecast ($ in millions) $320-$420 $370-$410 $350-$375 Pending Approval Separate $315 Approved Recovery Low range includes baseline ARA capital and approved separately recovered projects. Approved ARA High range inc
Slide 33: 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 34: Mechanisms to Incentivize Achievement of Key Outcomes
Mechanisms to Incentivize Achievement of Key Outcomes PIMs Description Max reward / (penalty) 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 ($6.8 million) Generation SAIDI and Incentivizes gene
Slide 35: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 PUC approved final PIM tariffs and held a workshop to discuss PUC order providing details on guidance and next Proceeding to evolve regulatory framework to better alig
Slide 36: Status of Key Open Dockets, Continued
Status of Key Open Dockets, Continued Subject and Description Docket # Latest Development Next Milestone DER Policies 2019-0323 The PUC issued two D&Os in Oct. 2022. The first establishes an Utility to file an ARD Compliance Filing in Jan. 2023 Investigates Distributed Energy Resources (DER) as they
Slide 37: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2021 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2022-2024) $10 Based on Sept. 2022 $8 assumptions for renewable $5 - $8 project commercial $6 operation dates and total $4 $2 - $6 generation, RPS-A PIM 2023-24 outcomes $2 expected
Slide 38: Fossil Fuel Cost Risk Sharing
Fossil Fuel Cost Risk Sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 39: Encouraging Rooftop PV, Customer-Sited Resources
Encouraging Rooftop PV, Customer-Sited Resources Providing programs and infrastructure to integrate and incentivize DER #1 Investor-Owned Cumulative Residential PV Installations (in megawatts) Utility in Rooftop Solar Penetration Net Energy Metering New DER Programs 7% 22% CAGR 517.8 483.0 441.6 of
Slide 40: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M) $4,523 $4,563 ASB has more than $208M of excess equity above the “well capitalized” level $3,773 Capital Ratio Tier 1 leverage $2,486 $2,493 $1,821 As of 9/30/22 7.75% “Well capitalized” 5.00% $2,013 $2,049 $1,925 Minimum requir
Slide 41: ASB’s Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment
ASB’s Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment Adjustable rate assets ($ in millions) ~$1,214 Timing of repricing Consumer: $9 following rate increase • Revised guidance range accommodates further Fed >3 months -- rate increases during the remainder of 2022 <15 mont
Slide 42: 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 7.8% 4.5% Personal ✓ ~84% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 58% Constructi
Slide 43: Quality Bank Balance Sheet and Loan Portfolio
Quality Bank Balance Sheet and Loan Portfolio ASB1 Investment Portfolio Investment Portfolio Average yield on earning assets 3.09% Sectors Ratings Average cost of funds 0.13% Return on avg. equity2 14.2%/15.1% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 100% of 60% ASB
Slide 44: 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 45: 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 proposals and related costs; reliance by the Utilities on outside parties such
Slide 46: 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
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