Hawaiian Electric Industries (HE) 8 Aug 222022 Q2 Earnings call transcript

Good afternoon. Thank you for attending today's Q2 2022 Hawaiian Electric Industries Inc. Earnings Conference Call. My name is Tania and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. now host, to Investor Julie Corporate is over the Relations It Sustainability. our to Smolinski, Instructions] my pass pleasure conference and [Operator Vice President, proceed? Please

call. HEI's you, quarter Thank everyone to Welcome XXXX Tania. earnings second

Paul Joining me today Teranishi, President HEI senior Scott other Seu, American Electric Savings Shelee Hawaiian CEO; and management. Ito, CEO; members and Kimura, and HEI's CFO; and Interim President are CEO; Ann Bank President of

Relations section press and Investor available presentation on this for are our release call of Our our website. the

As will call. a differ made Factors Relations be our be that expectations Investor of to the presentation, found section from forward-looking results SEC our reminder, statements in on filings, in our could today's cause materially and can actual website.

remarks. his Now, begin Scott with will

us share of Greetings pleased earnings for We're quarter second Thank with $X.XX. per $XX.X consolidated you million earnings of joining today. and our everyone.

solid reflect performance-based earnings to the which utility, under Our well at perform results framework. continues regulation the

continued call strong had expenses While growth expect within we've higher range bank and on our half shortly, albeit the quarter of utility The rate which well, for to as lower discuss and higher last range. the we remain within guidance good O&M from further mentioned environment. we year, we'll the a to benefiting see the the quarter's loan

provision bank's the five following expense consecutive normalized return loan quarters more With growth, negative a the a quarter saw to of provision. also

stakeholders, Taking we clean year of transition. our climate agencies, approved storage September for reaffirming recently a a milestone, We're energy online in solar versus great the is came year. recent to last XX. storage prior retirement storage for end on to project Commission change results project a proposed PTA the and quarters. awaiting to July range Overall, this government strides of Plus While making regulators, state's in working dynamics we're asked developments; The X. consider are commission was together the our and decision. bank's The track online, at action also guidance so. plan. X solar next to and look plus action we're plus developers Hawaii, largest approaching on for our come proposal us major and The in plant key coal other consistent battery the last [ph] the with are our the anticipated utility This linked reduced this coal adding projects solar closer year. consolidated slated the was state's on months more Maui Stage few Solar in that do storage Two a with

Renewable project battery the it project. after with that In remain secured active, Infrastructure approved megawatts addition, that battery it or of proposed megawatt we Hawaii IIJA Investment hours storage Xand Act, nearly X PUC denied, funding Island totals X,XXX the Commission for learned indicated Stage under whether that our Jobs storage. reconsider we've XXX may and by energy Stage previously capacity RFPs

gigawatt energy We Stage for and hours XXX Hawaii and Maui, between of annually issuing Oahu, and draft continuing more X,XXX RFPs variable, capacity. X seek firm energy, Island clean totaling megawatts to are renewable dispatchable of renewable resources, XXX our megawatts

grow to well. working are as resources We customer

deployment. mechanism manage XX% costs our recent deployment recovery now place under as decision flexibility smart the the program, continues now within meter in for and recovery seek additional for O&M cost than smart expanded associated with increased we well Our greater as that meters more customers with have commission of of to

RPS will with percent Incentive this targets has based total that of remain law actual change state's is RPS-A formula of updated generation renewable our and be sales. Performance The unchanged. or results is than Finally, effect on RPS our lower Consistent PIM. rather generation, while the as of a Mechanism been a now percent

However, our are exceed targets. the RPS-A all designed of plans to

So a Regulation reliability, working the Wwen and be timeframe we expenses. costs, collaborative the retires. incentives our allow similar transition our for with extending reflects plant Performance-Based know impacts request is coal are month, PBR temporary harden effective increase feeling management reliability priority. this customers meet We the inflation customers a Last Ensuring developing XXXX, five-year creating us the or inflation of covering reliability change high bill approval. in goals. three approaches XX, grids impacted the the past while We've limiting electricity the for designated our throughout costs that of rest key high services order approved, our our new enhance performance expect retirement. $X resilience fuel for coal two along quarters, PBR Strengthening challenged an the we customer PIMS interconnection the units January issued expect commission our month. and RPS a We needs pending the incentive. Commission as the remain The impact climate and the financially also to cost Last as incentives, month, of and to our outcome pressure is to that dynamics maintenance group, with plant rates filed also new and a and we'll our than to Due on docket forward. customer commission plan purposely critical. generating the resilience O&M proposed form PUC completion year. we the we refining AEF timely and studies and going if of oil confident a meet which has accelerated to efforts continue is as generation will household overhauls in grid performance less and further This a current the has proposed to

offering utility to We encouraging manage utility non-profit ways cost connecting flexible structure, a utility fuel recently rate through programs, and to as to generation fossil to from have and look storage, comprehensive our efforts conservation, scale includes and and cost program saving solar underway away programs, payment to efficiency we help redesign, in plans, improve participation our their fixed implemented. such DER employee retirement customers energy bills. government assistance This electricity customers transitioning for continuing

accommodate Loan return year this year. of reducing Turning to to to its dynamics maintains expense The low We most did growth, bank; well risk solid results base. and normalized growth earnings including compared the bank's that provision to the low quality the anticipated second we high see and cost the was quarter profile, portfolio. across funding for very during continues are and with prior bank's strong perform to quarters. position, quality credit ASB consistent bank quarter a its linked the more

our rising healthy further sorry, the I'm rising the quarter expansion. rate expansion second The drove and Federal environment environment pipeline. margin to last drove expansion. loan is rate second expense in see further expected margin activity additional Federal rate month continue Reserve's the expected the to Reserve's month We increased is in quarter in last spur to increased spur additional the rate and

Our bank's to upgraded capabilities digital payments digital invest in transformation, to track. transformation data and for including continue recently Zelle our management. on We and in remains person-to-person customer relationship

our the process is position. hand we CFO serving as fill complete Interim to call until I'll CFO over the Paul our to who Now

pre-pandemic levels. XXXX XXXX the economic it over still passenger Total XXXX. is domestic date Thank although tourism are with us the were the economy Tourism arrivals, through for pre-pandemic through for off Hawaiian's housing to have historically records and expenditures a highest arrival key above spending remaining in other seeing. and source international picking we markets to is also International pre-levels. market Arrivals close XXXX to of their and to year in accounts XX% domestic however from are total strong levels. which XX% multiple and arrivals headwinds strengthen levels June, total XX% and tight. accounts hitting we're are positioned serve still higher of from arrivals housing well of since we June months compared Canada last and main levels? our some April an visitor for Hawaiian's level our July strength strong, saw of well passenger July June additional as you, below well prices continued been account of Japan is inventory Scott. now healthy has this are believe year up year on in grow also very higher more to of over tailwind are International will XXXX. than Japan year-to-date a economy. traditionally than we quarter tourism approaching remains Visitors

in Our to family portfolio single through loan less of quality secured bank's strong This of supply XXXX XX% is stability, portfolio Mainland in housing to a a downturns. credit decline and Hawaii a than housing half less value to location home market XX% value bank's average with relative also contributes portfolio on well estate of XX%. XXXX, conservative the loan weighted the has is has performed on limited on and prices at levels real result the attractive was downturns. unemployment the fared through our comparatively less average. which basis our during commercial Hawaii residential than well market of than as From

financial its in in June peaked at of Hawaii's XX%. crisis, while great X.X% pandemic X% Hawaii, the During unemployment peak in favorably national rate down April, trended X.X% risk supply and XX% was we In since XXXX, has measured chain the Hawaii unemployment inflation June unemployment as near-term watch reached path last as optimism continue of the of is for very recession and possible summary, a closely. impacts economy, of while there and the well dynamics year. to from

economy relative past, a stable. and has fared in is the downturns through Hawaii currently on the However, basis, well

enterprise. X% continues under to earnings our second were the in and Slide last to year. versus full X, results Turning utility first reflected execution up perform The PBR solid across well quarter year its

banks impacted the continues more expected were releases million and million a have equity mortgage insurance was quarter's provision environment which provision offset loan on with a benefit versus expense, bank Utility did income some pressures interest loan X, loan impacted higher some O&M the we XX down. to impacted fee on strong on net growth. return at months asset On earnings expense, compared across down growth given a line and basis. strong interest in with Protection I'll bank non-interest costs like remained are than to $X the strong it higher despite shortly. saw growth. show Slide XX expectations PPP well, higher loan Non-interest remained Net on up by Consolidated to XX.X%. X.X%, that to We to The and coming million income utility partially incentives companies, to last and second quarter saw bank favorable Recall our XXXX. last ROE as the invests margin strong lower its manage compensation XXXX Lower and due the to Program healthy $XX.X more labor although due Overall, to last tight of to seeing were we the ROE pressures discuss XX% normalized transformation. at expanding lower variances balances, has and enterprise also credit at lower more OEM, off last average expense, bank major $XX.X months saw normalized performance pressure quarter the growth. million seeing in to interest of upward taken compared primarily in year expenses benefit due offset to primarily The compared by was recorded of negative digital the provision a return quarter driven as rate were market. sizable the quarter, earning income this Paycheck strong expenses the we provisions provision by income compared last although PPP XXXX continued driven due by in second the is by a mortgage lower bank loans as banks of and slightly from to releases large bank Compensation growth the had by anticipated banking was higher primarily as or provision last income year. most net production. quarter trends, we The releases loan second expenses pandemic. year, earnings primarily associated was pay life due bank in of $X.X the provision year, income

higher expenses, bad by maintenance higher On higher, the modernization. or primarily driven items from were primarily more revenue revenues offset project, ARA expense. the well and utility facility, These and X% O&M recovery net adjustment higher were as overhauls by grid revenues partially driven side, higher generating which by debt income was major interim performed annual as

the to If AES our you coal we efforts facility quarter, maintenance year, recall message maintain higher accommodate of continuation by driven adequate throughout fleet and in time last from we needs which and by to renewable is costs. as the as generating margins accelerate driving plant recycle our reliability approach our increased this maintenance To overhauls complete needed older unit up energy. to shorter of maintenance often we've generating work reserve ensure intermittent periods generating more retirement

cost In addition, debt pressures higher has fuel than also bills. year-over-year expense the bad variance. higher impacted leading deferral expense prices been oil to have year's also anticipated O&M. magnifies inflationary COVID-related bad given debt customer of high Last

year. our Turning utility Slide X, through This resource permitting that We has of be CapEx headwinds $XXX million quarter constraints. and disruptions, the to $XXX to million was at second availability CapEx the been chain range anticipate will due $XXX from lowered CapEx delays, the million. anticipated year's continuing for than end approximately supply to lower now

earlier, the from reliability as expenses coal generators continued often. and the to we off our rest cycle overhaul we Mentioned transition generating Turning maintain for higher expect and station utility. year maintenance for pressures the O&M to drivers more of

on experiencing exceeded addition, XXXX. PI of determined the PBR in we year. In will are XXXX Inflationary by inflationary X.X% allowance that provided the October XXXX be for GDP for inflationary costs pressures forecasted this adjustment under

through fuel debt expect expense receivable accounts pressures higher persist and resulting oil also from customer prices year. higher We to bad the

to Although ARA the the expected level. O&M allowance, within above to expect year be we we it now previously be modestly that for

expected rate maximum mechanisms year for better We rate risk substantially costs. have last are incur fuel heat forecasting since also cost but net now mostly performance expectations penalty that, moderated from mechanism given We we heat penalty performance offset previously fuel that expect a to this high would tenant the which quarter. sharing do

forecasted. interconnection We will that previously rewards also expect from PIM than our slightly be lower

margin been and income bank, quarter, Turning five portfolios. assets interest PPP a been versus nearly by has and rising maintain in continue commercial as A ASP's growth loan estate fees. expanded $XXX,XXX benefits remaining to and cost We've commercial funds left. rate in a durable versus were flat reflect the of offset for in basis the particularly earning of to real rate higher lower interest low higher cost partially to Net of points with able recognized yields, also the higher growth to at a We've only all QX. low net even funds about environment ASPs, yields advantage X.XX% last quarter in PPP environments. fees the X.XX% now

for The performance be market rest bank XX. year end. the fed of rate year expects Slide by of drivers to the Turning around now funds the on to X.X% to X%

from range. for near although expect to interest quarter-over-quarter, We guidance now the benefits higher comparative be of interest see rate PPP a margin net end year to will continue lower offset from X.X% the environment; fees. on X.XX% to expect margin some We seeing our basis, net high the we

with We our market lower conditions, to cost as We expect costs digital management interest due to given well balance non-interest and lower inflationary mortgage expense continue rates. income as as transformation. this to higher related seeing banking anticipate continued year, pressure on mortgage some we production labor

see loan to redeploy the across portfolio runoff loan to continue expect to investment from continue the growth. healthy pipeline to and fund We portfolio a

guidance are range. turning the updates; $XXX $XXX the slide mention, we on Now expecting CapEx end of utility million lower guidance to at to as million our our

are this be factors expecting the drag will a We moderate year, on based noted also earlier. PIMs that

guidance longer expect from our of still earnings generating end to $X.XX above modestly bad utility basis, PIMs. pressures. EPS O&M ARA overhaul term range. inflationary utility continued growth we X% expenses, to from maintenance allowed be at expect a pressure to XXXX with debt be XXXX to also On upside station expect with this year approximately expense, We of higher higher Overall, and levels and $X.XX the lower we

bank; we Turning as are the to range. at end the expecting mentioned, NIM higher guidance of

now inflationary environment expect and to the we expense the compensation pressures be prior and on year. slightly Given benefit above non-interest expenses,

time half in of gain for to year at the bank are holding in are reaffirming are $X.XX $X.XX. the company consolidated Pacific on in a for to We the We to $X.XX guidance $X.XX range first reaffirming of expecting loss Overall, this upper of cents excluding year, to guidance be the $X.XX potential range, EPS $X.XX $X that current still cents we quarter. reason, the at sale our the

the turn everyone we call Mahalo, Scott. your joining back to look to questions. I'll us, Now for forward

The comes first [Operator America. of from question instructions] Julien Bank Dumoulin-Smith of

Your line is open.

Excellent. Hey, good the for it. afternoon team. much here. Thanks so opportunity Appreciate

commentary earlier kick to earnings expect lower ago thank So right, discuss from just you you you. the Maybe considering utility with to potential off Can the moment saw you a here, here, to PIMs of end upside PIMs. the from you range upside the just us that quote your those at the and just potentially in rewards point. the how with expectations could reflected guidance how understand cost to PIMs in want exactly impact and I materialize along respect from PIMs interconnect. upside to remarks what's with fuel from this

to and speak can bit, some you If takes. a it puts little

as prices, go add team Yeah. then and some team a RPSA potentially and to are moderate Shelee 'XX we PIM, if I'll the through to but and the in over everybody, field are far we're ask challenged pitch as in utility. are particular and me years, like year sharing onto they at at But and But it 'XX let are this looking being we 'XX then the high as the cost definitely because headwinds expecting you yes, start forward. and PIM of that. earnings fuel we as PIMs we recall, oil that that still off statement, I'll want robust Shelee whereas to referencing seeing year, this the grow we 'XX

Shelee is from This right, Kimura got Scott. Julian. you Yes, that Electric. Hi, Hawaiian

COVID off sorry, while here my still just world. taking in mask So

as because for PIMs the impacts the upside get XXXX, projects. we've for be of you for had and not in-service expecting Scott all delays probably outlook, the So know many where all to chain this push able potential, to our indicated because and is we about the We've but to forward states of, back very we're the PIM is And well. have about tariff of really the renewable the things longer hit of supply the really talking that term RPSA. for that's comment on going greatest

also pushing see potential going upside RPSA our where earning that's the we back and forward. So that's

respect beyond Got it. year-over-year 'XX to us here with fuel and how can you period. just And the the guys resets 'XX, remind that 'XX

your Can you question just said Yeah. you when fuel? clarify

think should this cascading factors we that of do fuel net you will. about even you can 'XX, in just moderating, the quantify it's how cost next Just If 'XX, these obviously year, headwind to the year, but how elevated about other it's we a been try think described? into bit if again, more, if little a you it

now. well, going is Yeah, we -- But ball. somewhat it's our unpredictable. are the be right crystal for up going to come but be factors; customers expecting do of that fuel to has several nobody impact in course, down hopeful that we to We're XXXX,

our to reset team is levels January. other to add that I'll that ask thing And then get The in and fuel is will that.

Hi Paul, this is Dane.

in on Just for or works. fuel price during cost year down, or risk a cost quick we index penalty each determines would mechanism, a it depending where is fuel sharing terms the that of set mechanism January, sharing a of In how much have how the summary prices up go reward. and risk base

the going index. are base Paul? that January set. does prices that will XXXX, Does In be make to make the really sense, -- be So XXXX,

with period here this year. order get reset Yeah, especially extent the contribute is at subsequent The in puts next positive decrement upside of In could a trying some as for takes absolutely. to periods, PIMs here period 'XX. future well, what earlier the be to what considering the Right. the respects, What in periods I about, right? could moderation a was and contributor year

get in a I of was as reset, to it was into as index able going expect that is prices price then we terms benefit we XXXX, us. was What see to be and fuel when Dane are add January, the field so if Sorry. to will decline would in then for as is right that essentially actually describing

has the on upside a -- year or determine are, positive whether for not prices or gone on us field a depending it depending and negative. going So that's the what January that's to

tie there bring you new if upside to you've got growth. number the maybe in together And this the it from quickly PIM's outlook is here. considering everything hypothetical of period, as terms think a super What today, here, 'XX order about and together all Right. could that just X% out I

Yeah. the have the is biggest this provides materials Julien, opportunity question. in the on PIM do Dane. take that there. RPS-A We some that Yeah. guidance I'll

the see could the other PIM provide are ranges as And, and addition about of interconnection there there million, $X there in some million So potentially then on and thing $X decision to cams PIMs mechanism summary services are between shared collective you upsides that of an $X PIM, the there. grid But have upside date there that new million. a awaiting for didn't we we here our XXXX a the are savings have but, some new as a talk PUC, also those PIM example. XXXX, effective we be XXXX, PIMs some million which, is, $X.X effective can for between in the that, and PIM the all also and in

Thank I there through patience. a are you Appreciate pieces guys lot pieces. here. this. you moving Right. for Numerous guys very your of much know walking

Thank you.

Patterson, question Paul next Our proceed. from Please Associates. Glenrock comes

Okay.

guys, and So apologize, I I I Inflation apologize Act. if I the you you Reduction speaking? think about didn't it it. generally do about afraid. Could this, What but much I'm guys hear missed

Yeah.

tax credit from same potential well. that benefit renewable as So, and speaking, strategies along our respect projects and of other to supportive very, you're hearing sure generally provisions, very ultimately lines, energy utilities especially lot the a customers I'm we our see with upside, the of will and

but just of ask else let anybody tax look they So positive provide impact some me good color. if not wants overall below to a Paul it would looks additional would we or do the actually like threshold legislation. us piece The additional provisions legislation. But like because fall

by with still So yesterday. not that approval the pleased we're Scott We're but finish to made tackle very bill. Senate mentioned, its affected to but yeah, incentives, plan. as line hoping further achieving being change yet, one population. the progress the on is a be will evaluating the also as a the we're renewable, climate at as cost lower Obviously transition with utilities, low we're the mentioned Clean as we're which to again, we're of our Scott of incentivize won't below for the climate the mentioned, lot there that but that, very was utilities this accelerate outside by the, action progress Energy provision mentioned, tax moderate customers, Scott course, community, XXX% benefit our in are of credit aggressive the the well threshold, Hawaii's pleased income will on incentives The it, focused Scott will that segment but of lot of minimum also tax, we and provisions because the side that we're broader

good this there for very a obviously lot we about through, to So bill. us go new there's but feel

This through. of for is procurement of in help on through and so going that our lower the and we're really And of just timing will are up cost and It customers of we this Shelee. that that come process. we're timing as was the as I that's bids hopeful our How you comes depends go we for. this add the seeking when what RFPs renewable to have coming megawatts hundreds that energy RFPs and heard, really that are you?

generation, PIMs the that that of the involve PPAs? one, you was one or great. would reliability one does owned is PIMs this Okay, generation also is I that company There, only for newer mentioned of assume,

ahead generation, Shele. sorry, only ahead, is for go That Go you can Shelee, clarify. I'm right?

that. answer Colton let, I'll

from Yeah. Electric. Paul, Ching morning, Good is this Hawaiian Colton

generation generation PIM events third have. party But is or well PIM as the transmission from mentioned, we encompasses the that reliability it currently distribution PIM the generation as separate existing both previous caused Scott and performance utility the, in as for owned So total. IPP

Okay.

sure I think that control reliability should Is idea? how performing. be guess, to, about the parties, would incentivized they're think. is the I in completely slight guess will that your that So we that? Or be, make concern you third might I start of

Yeah.

as need are critical now which Paul, the independent where the performance manage of we quite reliability So, Hawaii's right? But, us, having we requirements different situation operators of fleet right in reliability long IPPs have for many producers. Hawaii from and IPP, In they way, well it independent combination as in partnerships that understand the power as reliable. also well producers, keeping manage power those the system kinds facilities our as comes generation, the to how had how as so units of have have term with role well. because we'll The too grids, contracts operation of years is reliability our partners that performance with they entire our of dispatches the a with of and our

and have so the a thanks great Well info one. much Okay. for

no As further queue, the management pass like any closing are for I to remarks. to it in would there instructions] back questions the [Operator team

come if us up Thank And do a please know you on. joining Thanks. Have great week. everyone for any questions let today. us further later

conference Thank Hawaiian you call. This Industries, earning Inc. concludes participation. your for Electric the queue XXXX

now line. your may disconnect You