Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q4 2019 Earnings Presentation
40 slides from Hawaiian Electric Industries's earnings presentation, Feb 13, 2020
Slide 1: Cautionary Note Regarding Forward-Looking Statements
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This release may contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “will,” “expects,” “anticipates,” “intends,” “pla
Slide 2: Cautionary Note Regarding Forward-Looking Statements (continued)
• the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units; • the ability of the Utilities to negotiate, periodically, favorable agreements for significant resource
Slide 3: 4th Quarter & Full Year 2019 Financial Results; 2020 Outlook
Hawaiian Electric Industries, Inc. 4th Quarter & Full Year 2019 Financial Results; 2020 Outlook February 13, 2020
Slide 4: 2019 highlights
2019 highlights WHAT WE ACCOMPLISHED Achieved consolidated EPS growth of 8% Improved utility and consolidated ROE Hawaiian Electric continued to deliver on key priorities of its five-year transformation plan Hawaiian Electric named 2019 Utility of the Year by Utility Dive American Savings
Slide 5: 2019 utility achievements
2019 utility achievements Reflects strategic transformation plan priorities HAWAIIAN ELECTRIC • 28% of energy sales from renewable sources • 21% jump in solar generating capacity, largest single-year increase ever • Highest residential rooftop solar penetration in U.S. at 19% of customers • ~5% incr
Slide 6: 2019 utility achievements (cont'd)
2019 utility achievements (cont’d) Reflects strategic transformation plan priorities HAWAIIAN ELECTRIC • First phase of multi-year grid modernization strategy gained PUC approval Modern grid & • Began targeted deployment of advanced meters technology platform • Awarded contract to own, operate and m
Slide 7: 2019 bank accomplishments
2019 bank accomplishments Maintained strong margins despite challenging interest rate environment AMERICAN SAVINGS BANK • Maintained consistent performance during a challenging year for interest rates, delivering earnings growth over 2018, while growing dividend to holding company • Maintained net i
Slide 8: 2019 Pacific Current accomplishments
2019 Pacific Current accomplishments PACIFIC CURRENT Continued to optimize existing projects, evaluate new sustainable infrastructure opportunities • Began using locally-produced biofuels as part of Hamakua Energy’s fuel mix, advancing Hawaii Island energy independence and energy security • Launched
Slide 9: Hawaii economy remains stable
Hawaii economy remains stable Moderate growth path expected Dec. 2019 vs Full year 2019 vs Dec. 2018 full year 2018 Total arrivals +6.0% +5.4% Tourism Total expenditures +10.5% +1.4% Unemployment • December 2019 – Hawaii: 2.6%; U.S.: 3.5% • YTD December 2019 Oahu sales volume vs PY: – Single family
Slide 10: Full year 2019 financial performance
Full year 2019 financial performance Net Income (GAAP) Diluted EPS (GAAP) Consolidated LTM ROE ($ in millions) $217.9 $1.99 $201.8 $1.85 $89.0 $0.81 $82.5 $0.76 9.8% Full 9.5% year $156.8 $1.32 $1.43 $143.7 ($24.4) ($27.9) ($0.22) ($0.26) $0.61 $66.3 $0.45 $49.6 $0.26 $28.2 $21.8 $0.20 Q4 $45.4 $0.4
Slide 11: 2019 utility performance
2019 utility performance ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 2019 vs 2018 New rates and RAM revenues $ 24 MPIR revenues 11 Performance incentives 2 $156.8 $143.7 Lower interest expense 2 Operation & maintenance (O&M) (15) Depreciation (9) 2018 post-
Slide 12: 2019 bank performance
2019 bank performance ($ in millions) BANK NET INCOME 2019 vs $5.51 Key bank earnings drivers, after-tax fav/(unfav) 2018 Net interest income $ 4 $82.5 $89.0 Provision for loan losses (6) Noninterest income 13 Noninterest expense (6) 2018 2019 SUMMARY OF ASB Common equity tier 1 Tier 1 capital Total
Slide 13: Bank profitability metrics
Bank profitability metrics Return on assets (%) Return on average equity (%) 1 13.5 1 1.25 1.26 >1.15 10.6 2019 ASB Peers ASB Peers Annual Target 2019 2019 2019 2019 ASB Target ASB Actual Peers2 Source for peer data: SNL Financial (based upon data available as of February 11, 2020). 1 Includes impac
Slide 14: Net interest margin
Net interest margin Full Year 2019 NIM 3.85% ASSET YIELD (%) NET INTEREST MARGIN (%) 5.0 4.00 4.5 4.0 4.22 4.29 4.11 4.11 3.75 3.5 4.00 3.0 4Q18 1Q19 2Q19 3Q19 4Q19 3.50 3.99 3.95 COST OF FUNDS (%) 3.82 3.82 3.74 1.2 3.25 0.8 0.4 3.00 0.28 0.31 0.30 0.30 0.26 4Q18 1Q19 2Q19 3Q19 4Q19 0.0 4Q18 1Q19 2
Slide 15: Net interest income
Net interest income ($ in millions) Total loans $5,084 $5,121 $4,844 Net interest income and noninterest income Net interest income Noninterest income $87.2 $76.9 $78.4 $13.5 $16.3 $26.3 4Q18 3Q19 4Q19 $63.4 $62.1 $60.9 Total deposits $6,159 $6,196 $6,272 4Q18 3Q19 4Q19 $828 $783 $770 $6,390 $6,468
Slide 16: Prudent credit quality management
Prudent credit quality management Net charge-offs1 Nonaccrual loans2 0.69% 0.83% 0.79% 0.63% 0.56% 0.58% 0.37% 0.39% 0.41% 0.40% 0.45% 0.29% $8.7 0.38% 0.38% $32.0 $29.7 0.07% 0.09% $27.3 $40.2 $39.4 0.07% 0.07% 0.05% $5.6 $5.3 $6.9 $4.7 $7.7 $4.4 $3.6 $3.3 $2.4 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q
Slide 17: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment Annual investment of ~2x depreciation to transform grid, integrate more renewables CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST ($ in millions) ($ in millions) 4-Year CAGR ~4-6%1 $600 $3,730- $4,000 $4,010 $450 $350-450 $350-$450 $4
Slide 18: HEI financing outlook 2020
HEI financing outlook 2020 (As of February 13, 2020) 2020 HOLDING COMPANY SOURCES & USES OF Intend to maintain CAPITAL a consolidated ($ in millions) investment grade profile ~$210 ~$210 Holding Debt Issuance Utility capex Company ~$30 program equity Expense, ~$30 needs funded HEI Investments withou
Slide 19: HEI 2020 EPS guidance
HEI 2020 EPS guidance (As of February 13, 2020) HEI EPS: $1.90 - $2.10 PER SHARE UTILITY EPS: $1.46 - $1.54 BANK EPS: $0.73 - $0.80 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • No change to decoupling or recovery • Low to mid-single digit earning asset mechanisms growth • No material impact from PIM penaltie
Slide 20: ESG is in our DNA
ESG is in our DNA Focused on enterprise mission to be a catalyst for a better Hawaii Our core strategies reflect our long-standing recognition that the strength of our companies is inextricably linked to the health of our environment, economy and communities Recent developments Completed ESG mater
Slide 21: Summary
Summary HEI • Place-based strategy provides the financial resources to invest in our strategic growth and Hawaii’s sustainable future Hawaiian Electric • Collaborating with stakeholders to advance 100% renewable energy and carbon neutral goals • Focused on delivering customer value and ensuring affo
Slide 22: HEI: Catalyst for a better Hawai'i
HEI Catalyst for a better Hawai‘i —
Slide 23: Appendix
Appendix HEI Catalyst for a better Hawai'i _———_a
Slide 24: Q4 2019 utility performance
Q4 2019 utility performance ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) Q4 2019 vs Q4 2018 Lower operations and maintenance $ 6 RAM for Hawaiian Electric, Hawaii $45.4 Electric Light and Maui Electric, and 3 $35.3 new rates for Maui Electric MPIR revenues 2
Slide 25: Q4 2019 bank performance
Q4 2019 bank performance ($ in millions) BANK NET INCOME Q4 2019 vs Key bank earnings drivers, after-tax fav/(unfav) Q4 2018 $7.71 Net interest income $ (2) $28.2 Provision for loan losses (2) $21.8 Noninterest income 10 Noninterest expense - 2018 2019 SUMMARY OF ASB Common equity tier 1 Tier 1 capi
Slide 26: Utility LTM ROE reflects triennial rate case transition
Utility LTM ROE reflects triennial rate case transition Consolidated ROE 2019 CONSOLIDATED UTILITY ROE 10 0.4 0.2 0.3 0.1 0.2 8 0.2 0.4 0.1 0.8 6 ROE (%) 9.5 8.2 4 7.8 2 1 2 3 4 5 6 7 8 9 0 Allowed ERP ROE Non-recoverable carrying charge rateCustomer on RAM balance Revenue Benefit lower Adjustments
Slide 27: Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases
Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases ($ in millions) 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)
Slide 28: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation Parties filed updated comprehensive Workshop meetings Feb., March Develop new regulations aimed at lowering electricity costs, proposals and April. Second proposal update 2018-0
Slide 29: Regulatory evolution: Performance-based regulation (PBR)
Regulatory evolution: Performance-based regulation (PBR) Current Mechanisms 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 rate ca
Slide 30: PBR guiding principles, goals and outcomes
Phase 1 PBR D&O established conceptual framework Conceptual framework established PBR structure • A customer-centric approach, including Revenue adjustment mechanisms Guiding principles immediate “day 1” savings Maintain revenue decoupling and existing cost trackers • Administrative efficiency to
Slide 31: PBR—Phase 2 continues collaborative approach from Phase I
PBR—Phase 2 continues collaborative approach from Phase I • 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 • Annual revenue adjustment mechanism has potential
Slide 32: 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 33: Hawaii Electric Light 2019 rate case status
Hawaii Electric Light 2019 rate case status Hawaii PUC docket no. 2018-0368 Application (2019 Test Year) Interim D&O (11/13/19) (Eff. 1/1/20)3, 4 (12/14/18)1 Amount requested $13.4M $0M (3.4% increase over revenues at current effective (0.0% increase over revenues at current rates)2 effective rates)
Slide 34: Major project interim recovery (MPIR) mechanism
Major project interim recovery (MPIR) mechanism Hawaii PUC Docket No. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Schofield Generating Station project • Allows recovery for eligible major projects in between rate cases through • Capital cost recovery approved June 2018 the reve
Slide 35: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) Current PIMs1 ($ in millions) Reliability Customer Fuel Cost Resource Acquisitions Service (Oahu & Maui) $4.0 $2.0 $3.1 $6.5 $1.4 $0.0 $0.0 ($1.4) $0.0 $0.0 $0.5 $0.0 ($2.0) ($3.4) ($3.4) ($3.1) ($4.0) Interruption Interruption Call Center Fossil Fuel Demand R
Slide 36: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Approved for Hawaiian Electric and Maui Electric; included in Hawai‘i Electric Light 2019 test year settlement • Hawaiian Electric: Final D&O in 2017 rate case established fossil fuel cost risk sharing mechanism as part of Energy Cost Recovery Clause January 2020 fuel -
Slide 37: 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 38: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements This release may contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “will,” “expects,” “anticipates,” “intends,” “pla
Slide 39: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • 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 Interco
Slide 40: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • 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
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