Q3 2021 Hawaiian Electric Industries Inc Earnings Call
[music].
Hello, and welcome to the key three 2021 Hawaiian Electric industries earnings Conference call.
Following the presentation today, we will have a question and answer session. If you would like to register a question. Please press star followed by the number one on your telephone keypad.
I would now like to hand, the conference over to Julie Smolinski.
VP Investor Relations and corporate sustainability. So Judy. Please go ahead.
Thank you breaker welcome everyone to Hawaiian Electric industries third quarter 2021 earnings call. Joining me today are Connie Lau Hei, President and CEO, Greg Hazelton, Hei Executive Vice President and CFO.
Got Sue Hawaiian electric President and CEO, and the incoming hei president and CEO as of January 1st.
Shelley Kimora Hawaiian electric senior Vice President of customer service and public Affairs, who is the incoming Hawaiian electric President and CEO also January 1st.
And Terry Nishi American savings Bank, President and CEO and other members of senior management.
Our press release and presentation are available in the Investor Relations section of our website. As a reminder, forward looking statements will be made on today's call factors that could cause actual results to differ materially from expectations can be found in our presentation, our SEC filings and in the Investor Relations section of our website.
And now Connie will begin with her remarks.
Thanks, Julie and Aloha, everyone very good to have you on the call today.
Hello, Thank you for joining us.
Hei had a good third quarter with utility financial performance in line with our expectations and solid profitability of the bank.
Third quarter consolidated net income was $63 $4 million with EPS of <unk>, 58 cents compared to $65 million and EPS of <unk> 59 in.
In the same quarter last year.
For the first nine months, our consolidated net income and EPS were up 30% compared to the same period last year.
As we near the end of the year, we are increasing the bottom end of our earnings guidance range, Greg will discuss the drivers of our performance and our guidance shortly.
First let me provide an update on Hawaii's economy.
While we saw a surge in Covid cases in the late summer from the Delta variant or community handled it well and cases and hospitalizations are now down dramatically.
Given these improvements governor <unk> recently welcomed tourists back to the islands and on Oahu restrictions have been loosened on events.
72% of residents are now fully vaccinated and 82% have received at least one dose vaccination of children is also starting.
A couple of months ago in its September forecast you hero the University of Hawaii Economic Research organization estimated the state's economic recovery would see some delay due to delta and reduced its 2021 state GDP estimate to three 5% instead of four.
Percent, we've seen some signs of improvement since then so we'll see how that plays out and you heroes next update.
Despite delta unemployment declined to six 6% in September the eighth month of improvement.
Hawaii real estate values and activity have remained very strong with Oahu prices and sales volumes up compared to the prior year.
Median housing prices on three of our four major islands now exceed $1 million overall.
Overall, we see encouraging signs for Hawaii's economy.
Turning to the utility cost efficiencies continue to be a central focus.
This benefits our customers and our company as we operate under performance based regulation or PBR.
The third quarter was our first full quarter under the new PBR framework.
We're on track to deliver on our commitment to provide $6 $6 million and management audit savings this year.
Savings have been reflected in customer bills since June 1st including $3 million in the third quarter and another $3 million to be delivered by year end.
We continue to have good collaboration with stakeholders and regulators as we work to Decarbonize, our economy and deliver affordable equitable reliable and resilient power for our customers.
We're working with developers and communities to add more renewable and storage resources.
The vast majority of stage, one and two projects continue to progress where.
We are monitoring supply chain impacts and working with developers to keep projects moving forward.
Last month, we launched the third stage of our renewable procurement for Hawaii Island.
Together with other members of the Governor's powering past coal task Force, we're working to ensure commission approved projects on Oahu successfully come online as we prepare for the retirement of Hawaii's only coal plant next fall.
We're confident we will have enough generation, an adequate reserve margin to keep delivering reliable power when the coal plant shuts down.
Customers and distributed energy resources play a major role in the clean energy effort.
Even through the pandemic <unk> adoption has remained on track for our de carbonization goals are.
Our grid services RFP process is also progressing we have reviewed and short listed the bids with final selection expected. This month, followed by PPA negotiations.
Adding grid services will help us leverage customer resources to provide additional options for our system.
We're also progressing on electrification of transportation.
Last week, we filed an application to expand public EV charging by adding 300 more public Chargers across our service territories through 2030, including 150 fast Chargers and offering new rates to incentivize charging during the day when solar resources.
Our abundant.
Finally, the commission opened a new process under PBR to consider potential additional performance mechanisms and has encourage collaboration among the utility and stakeholders in that effort.
Parties will spend the remainder of this year considering proposals to address outcome areas identified by the PUC.
Now I want to ask Scott <unk>, who is succeeding me in January to discuss the utilities newly announced carbon reduction goal Scott.
Thank you Connie Hello, everyone.
We announced our goal to cut carbon emissions from power generation, 70% by 2030 compared to 2005 levels.
This includes our own generation and independent power producers on our system.
We also announced our commitment to achieve net zero carbon emissions or better from power generation by 2045.
Our 2030 goal is aggressive yet achievable and based on real world projects and plans already in motion.
Key elements include shutting down the stage last coal plant next year retiring at least six fossil fuel generating units and significantly reducing the use of others as new renewable resources come online ads.
Adding renewable projects capable of providing at least one gigawatt of energy to our system, including shared solar.
Growing rooftop solar by about 55% from the 768 megawatts that were online in 2020.
Using more grid scale in customer owned energy storage expanding geothermal resources.
Creating innovative programs that incentivize use of clean lower cost energy at certain times of the day.
Beyond 2030.
Achieving net zero or a better assumes commercial scale development of new technologies like more cost effective biofuels and carbon capture.
A diverse portfolio will also enhance resilience to climate related events.
We're excited about this goal it's a major downpayment on the economy wide carbon reductions what you will have to achieve to be in line with the bite and administration's goal of 50% to 52% nationwide emissions reduction.
To your comment.
Mahalo, Scott now turning to the bank.
<unk> delivered solid profitability in the third quarter.
A modest release of reserves low cost of funds and deposit growth that drove earning asset growth helped offset the impact of the low interest rate environment.
During the pandemic credit has been a key focus as our customers adapt to evolving economic conditions.
The bank's conservative approach to credit has served it well.
Prudent reserve levels enabled it to manage the uncertainty from the Delta variant.
While we are optimistic about Hawaii's economic prospects, we're continuing our conservative approach to account for continued pandemic uncertainty in the bank's reserve levels.
Our bank is well positioned to benefit in a recovering economy, we're seeing increased customer interest in equipment purchases commercial real estate and other investments and as interest rates rise margins tend to expand particularly for a bank like ASB, which has been <unk>.
To maintain our low cost of funds relative to peers in rising rate environments.
Fee income can also benefit as economic activity increases with further reopening.
The bank is also aggressively pressing forward with its digital transformation, we continue to invest in key data analytics and customer management platforms to empower our teams to grow customer relationships and strengthened service.
We're seeing strong customer adoption of our digital offerings digital deposits are now almost 50% of all consumer deposits and we're seeing strong growth in use of our online tools.
We've opened four digital centers in recent months and customers are responding well to that new concept.
And now Greg will discuss our financial results and our outlook as well as our updated guidance.
To you Greg Thank you Tony.
Turning to our third quarter results as mentioned consolidated earnings per share were <unk> 58.
Versus 59.
In the same quarter last year.
Both the utility and the bank performed well Utah.
Utility results reflected timing items, we've talked about all year, we have some timing benefits in the first half of the year from a change in methodology for recognizing target revenues from accelerated cost reductions and efficiencies as we prepared to deliver management audit savings to customers starting June one.
And from generation overhauls that shifted to later in the year.
As anticipated in our annual guidance, we saw reversals of some of those benefits timing related benefits in the third quarter.
The bank continued to perform well in a challenging environment.
A modest release of reserves and a strengthening economy.
The low cost of funds and increased deposits that drove earning asset growth all contributed to solid profitability for the quarter.
Compared to the same time last year, our consolidated trailing 12 month Roe.
Improved more than 90 basis points to 10, 3%.
The utilities ROE increased slightly compared to last year.
While the bank Roe.
Which which we look at on an annualized basis increased on a year over year basis 10, 3%.
On slide nine.
Utility net income was $50 3 million compared to $60 1 million in the third quarter 2020.
The most significant variance drivers were $6 million and lower revenues, including $5 million from a change in timing for revenue recognition within the year and 1 million net relating to the annual revenue adjustment mechanism.
Which also included the $3 million of management audit savings delivered to customers.
We also had $4 million higher O&M expenses, driven by more generating facility overhauls, including some that shifted from earlier in the year higher cost for energy management system upgrades and a one time credit in 2020 that reduced medical costs last year.
These O&M increases were partially offset by a $1 million 1 million from lower labor expenses.
We also had about $1 million each from higher depreciation lower fuel efficiency due to maintenance outages and higher interest expense from increased borrowings.
The higher expenses were partially offset by $1 million from lower non service pension costs due to the reset of pension costs and rates.
And $1 million lower enterprise resource planning system implementation benefits passed onto customers compared to last year as we fully delivered on our commitment to provide oahu customers savings related to the system.
Regarding the drivers of utility performance for the rest of the year, we still expect no material upside from PBR performance incentive mechanisms this year.
And we're tracking the downside sharing under the fuel cost.
<unk> sharing mechanism and the potential for reliability Pym penalties.
A lengthy substation outage that had impacted reliability. This year has now been fully restored.
At quarter end, we had about $29 million of Covid related costs, primarily estimated bad debt expense and a deferred regulatory asset account.
The Commission approved an extension of Covid related cost deferrals until year end, we will separately file for recovery at a future date once we get a better idea of bad debt amounts that will be realized.
We expect to incur further overhaul expenses in the fourth quarter, which are included in our guidance.
Of note the utility has achieved the savings to meet its annual commitment under the management audit and is delivering those savings to customers.
Yes.
As noted last quarter under PBR during the multiyear rate plan earnings growth is primarily driven by three sources.
Annual revenue adjustment or <unk> mechanism, which works like an allowance that covers the revenue requirement on baseline capital, including return on and of our invested capital.
Operating expenditures.
This means if we manage O&M and capital investments at levels, we will earn our allowed return on the Capex portion.
We also grow earnings increment, we can also grow earnings incrementally by keeping O&M below inflationary levels.
Capital and O&M recovery from the exceptional project recovery mechanism or EPRI them.
Innovative pilot projects and the renewable energy infrastructure project or AIP mechanisms provide opportunities for meaningful earnings growth from invested capital necessary to support resilience grid monetization energy storage and other important utility programs.
These mechanisms also provide an additional O&M recovery mechanisms for those qualified programs.
All prudently invested capital earns AFDC prior to being placed in service, which can also contribute to earnings and earnings growth if capital investment levels increase over time.
Importantly performance incentive mechanisms can provide an additional opportunity to earn rewards through incentive sharing and shared savings mechanisms.
Under these programs, we continue to expect utility earnings growth of 4% to 5% with potential upside in 2022, the first full year of PBR.
Yes.
Turning to the next slides, where now we are revising our expected 2021 capex to $290 million.
To $310 million versus the previously expected $3 $10 million to $335 million.
Our capex plans this year have been temporarily impacted by substation restoration work COVID-19 related supply chain disruptions and a change in procedural schedules for.
Battery energy storage projects in.
In addition, we have more efficiently increased increased cost efficiencies on capital deployment.
We expect 2021 baseline capex to be about 265 $275 million.
And in about $300 million to $320 million annually in 2022 and 2023.
Separately recovered capex above the Ara, primarily EP RM should increase in the coming years as we have a pipeline of <unk> projects awaiting approval.
We currently have eight proposed projects totaling $324 million in the aggregate under EP RM and are awaiting commission approval of those of those projects, including public EV charging investments.
We are preparing an additional resilient filing for resilience investments necessary to address climate related events for our isolated island networks and communities not yet reflected on this chart.
As you can see on the chart, we provided ranges for separately covered capex with the low end of the range, including only approved separately recovered projects and the high end, including projects waiting approval.
Turning to the bank Asp's net income for the quarter was $19 3 million compared to $30 3 million last quarter and $12 2 million in the third quarter of 2020.
Compared to the second quarter, the lower negative provision for credit losses was the most significant driver of lower income in the third quarter.
Net interest income was flat to the linked quarter as deposit growth.
That drove drove earning asset growth and PPP fees helped soften the impact of margin pressures.
Higher noninterest expense was primarily due to increased incentive compensation expense, reflecting the bank stronger than expected performance for this year and increased investments in technology and data analytic capabilities as part of its digital transformation.
<unk> net interest margin contracted to two 9% from 298% in the second quarter, but still compares favorably with the median of our publicly traded peers.
Fees related to PPP loans in a record low cost of funds helped to offset some of the margin impacts from the low interest rate environment and continued excess liquidity.
We saw a faster pace of PPP forgiveness than we had expected during the quarter and recognized $4 million in PPP fees.
As of the end of the quarter third quarter, we had $6 million in PPP fees remaining to be recognized in future periods.
We anticipate about half of that will be recognized in the fourth quarter and the remainder in 2022.
Cost of funds was again, a record low six basis points down one basis points from the linked quarter and seven basis points from the prior year.
Overall, we still expect NIM for the year will range from two 8% to 3%.
We also expect that the balance sheet growth should still lead to net interest income in line with expectations for the year.
Despite the continued low interest rate environment.
Turning to credit in the third quarter, the allowance for credit losses declined $2 $3 million, reflecting credit upgrades in the commercial and commercial real estate portfolios and consumer loan Paydowns.
The bank recorded a negative provision of $1 7 million compared to a negative provision of $12 2 million in the second quarter and a provision of $14 million in the third quarter last year.
The net charge off ratio of <unk>, 3% was again the lowest since 2015 this compared to <unk>, 4% in the second quarter and three 2% in the third quarter of 2020.
Non accrual loans were 97% down from 1.0% to 3% in the second quarter.
And up from 77% in the prior year quarter.
As of September 30, nearly all previously deferred loans had returned to scheduled payments.
Our allowance for credit losses to outstanding loans was 148% at quarter end that still includes $22 million in reserves related to pandemic uncertainty.
ASB continues to manage liquidity and capital conservatively, maintaining ample liquidity and healthy core capital ratios. The bank has more than $4 billion in available liquidity from a combination of reliable resources.
Asp's tier one leverage ratio of 8% was comfortably well above above well capitalized levels and at the high end of our seven 5% to 8% target range.
Yes.
Yes.
Our financing outlook for 2021 reflects our strong financial condition and solid dividends from both the utility and bank.
<unk> consolidated capital structure and liquidity remains strong and we do not anticipate the need to issue external equity the rest of the year.
Our strong earnings and cash flow outlook allows us to maintain a conservative capital structure consistent with an investment grade profile.
Okay.
Turning to our guidance, we're narrowing our consolidated guidance range to $2 10 to $2 20 per share from our previously issued guidance of $2 to $2 20 per share.
We now expect utility EPS to be at or slightly above the midpoint of its.
$1 53 to $1.61 range, while adjusting capital guidance too.
Two.
$290 million to $310 million.
We're reaffirming our bank guidance of 79 to 94 per share and adjusting several of the drivers.
If the positive economic signs, we're seeing continue theres a potential for further negative provision expense in the fourth quarter. So we've widened our provision credits range to negative <unk> 15 to negative $25 million accordingly.
Additional provision could put us in the upper half of the bank's guidance range.
Any increase in bank earnings should contribute to an increase in the bank's dividend to the holding company.
Which we've revised to 60 million to $75 million.
We now expect return on assets to exceed one 1% for the year.
Given continued deposit growth for this year, we are increasing our earning asset growth expectation to low double digit earning asset growth from mid single digit.
Regarding noninterest expense, we now anticipate a slight increase from the prior year compared to a pre.
Previous expectation of flat to down.
Now I'll turn the call over to Scott.
Hello, Greg.
Now before return to your questions. It's hard to believe that today marks Conn his last earnings call.
Connie Mahalo for your leadership and vision.
Not just for companies, but also for our states.
As they say we stand on the shoulders of Giants and in this case Thats you.
From signing the 2008 agreement with the Governor and other leaders that put us on a path for our clean energy transition to leading the transformation of American savings bank into a full service community Bank. That's now for what <unk> third largest financial institution you set us on course for where we are today and positioned us well for.
The feature.
And so we move forward with the benefit of all that you've led and achieved thank you again.
Mahalo, Scott, it's truly been an honor.
So all of those listening in today, it's been a pleasure working with you in some cases going back many years well before I became hei CEO and I headed Hei's IR function.
I've loved all you're probing questions and insights and appreciate your friendship over the years.
Now I am privileged to turn the reins over to Scott starting in January with Scott at Hei, Shelly Kimura, succeeding him at the utility and Antero niche at the helm of the bank and with Greg as Hei CFO and Kurt morale is our general counsel I am very optimistic about the future.
<unk> of our companies and our ability to deliver on our mission to be a catalyst for a better Hawaii.
We and our shareholders are in excellent hands experienced in our markets and businesses possessing deep relationships in our communities and committed to continuing Hei's ESG leadership, particularly in climate change to benefit our communities and <unk>.
And at the same time that we create value for shareholders.
I look forward to seeing many of you at the upcoming Edison Electric Institute Financial Conference and for those I don't see there.
And as we say in Hawaii.
Ho or until we meet again.
And now let's open up the call for questions.
Thank you.
Session is now open.
If you wish to ask a question. Please press star followed by the number one on your telephone keypad.
The first question we have on the phone lines comes from Julian J Liman Smith of Bank of America. So Julien. Please go ahead when you're ready.
Okay.
Good afternoon team and I've got to pass my congratulations to everyone here one of the legacy created here and really I wish every one of you the best of luck here really do.
Thank you and we will see you soon.
Yeah.
Well, so maybe just to kick things off speaking about leaving on a high note here you talked about.
Taking a moment ago, we talked about utility earnings of four to five with the potential upside in the 'twenty two here under the first full year PBR can you expand a little bit on your latest thought process. There I know that obviously through the back half of this year, you talked about having some timing from an ROE perspective.
Having a little bit more downward pressure in the back half, but what is that dynamic that flips, perhaps more on your favorite here as you think about in the 'twenty two and the puts and takes.
Well, yes.
Julian just to remind you we made that same statement lashed at last quarter as well because under PBR once it's implemented.
Yes, as it's implemented for the full year, we benefit immediately from the lack of regulatory lag uncertain.
That was embedded in the Ram recovery mechanisms. So that helps us begin the accruals at the current at current levels immediately in January of 2022. So that's an immediate uptick but in addition, we see the.
The potential for.
A solid recovery across all of our invested capital programs under way as we've we've now achieved.
Some of the efficiencies we've been targeting and believe we can that we can live under that mechanism for the baseline capex as well as the significant.
Significant investments that we need to make under EPR and programs that will drive, which we get separate recovery on under those EP RM, our AIP and other mechanisms.
So there is there is a solid potential under a stable framework going forward and then finally, while we have an anticipated any meaningful <unk> contribution. This year, we do expect that ongoing dialogue around further pam's enhancement development and our achievement of our PSA Another pimm's will continue.
To provide upside to that baseline growth, yes, Julian I'd, just add as Greg had in his prepared remarks, we were able to bring a substation in critical substation back into service that was impacting our reliability statistics earlier in the year.
Right. Indeed, excellent and then actually you alluded in his prepared remarks as well, but if you can elaborate.
Talking about the positive economic signals youre, continuing to see if I'm paraphrasing correctly.
How do you think about the potential for further.
Provision expense here, obviously thats been.
Pretty material here through the course of the year can you elaborate at all.
To any extent I'm, just a the trends would be.
Put that a little bit more context on how you're thinking about the potential magnitude of any provision.
Yes, so I'm going to let Ann.
<unk> now running the bank answered that question for you.
Hi, Julien Thanks for your question. So when we look at release and provision numbers. There's two main drivers one is the state of the whole economy as well as loan growth and certainly the signals as shared in the prepared remarks show that things are pointing out as we looked at third quarter, we are still kind of.
In the height of the Delta variants and <unk>.
Visitor counts were going down and lot more restrictions in place, but certainly as we sit here today in October or November rather.
Vaccines for children International travel opening up and optimism in our business and consumer basis is clearly evident so as we reflected in the change in guidance, we do feel that signals are pointing in the right direction.
And Julian I would just add as we've said on prior calls it isn't just looking forward, but in banking you tend to really want to make sure that actual results flow through.
So we have kept that same conservatism in our reserving practices during this quarter.
Got it and just to recap here quickly on the changes in Capex Lastly.
I know you mentioned, specifically here the Covid Hudson certain impacts on Substations.
Substations et cetera.
But just the outer years years webs recap a little bit I know.
There are some changes in the ranges there in 'twenty two 'twenty three what exactly is going on there. If you don't mind speaking to it a little bit more I mean, it sounded like you had some efficiencies on the capex.
Sure and maybe I'll have <unk> speak to that because they've done a great job of deploying capital efficiently and we also have some updates there <unk>.
Okay.
Hi, Julien this is <unk> here. Thank you for your question Youre talking about the ranges in the future years that have changed and what we did for that was for.
Toward the lower end of the range. We included a level of Capex under the <unk> recovery and we also included Capex debt for projects that were approved under EPA RM recovery by the commission the high end of the range.
Included what I just spoke of as well as projects that are to be filed applications for the commission and as we wait for those decisions, we will feather those in as part of the normal range of Capex.
Also like to comment that if you look at our.
Future years in 2022 2023.
And we do have projects sitting for before the commission for their approval related to two projects that are renewable reliability type of nature and those include our battery energy storage projects on Maui, and Hawaii Island as well as the project.
Over in Kahului that will enable the retirement of the kahului plant in 2024.
Does the does that got it excellent.
And so.
Indeed.
As I mentioned as I mentioned in my remarks, we anticipate a further filing here.
Shortly regarding resilience programs and investments necessary for our communities for climate related impacts over the long term.
So that will likely have be added to our prospective guidance once that gets filed and clarified.
And that would be in the EPR got added gory.
Understood sorry, actually one more just sorry.
Sorry, if I could squeeze one in.
Aes, obviously has a fairly large facility.
In West Oahu.
Is that.
Would that have any impact on how you think about either a grid investments or potential generation procurement activities. Just wanted to clarify that I know that that's been there's been some questions around the fate of that plan here.
Ask you explicitly.
Yes Julien.
Got it.
Yeah, I'll take that one hi, Julien.
Yes, so right now of course, it's been pretty widely reported.
The interest in terms of whether or not that aes coal plant can be repurposed to be.
With biomass.
The PUC recently issued.
<unk> letter.
Which basically establishes the the process for key considerations that need to be.
Put on the table in terms of making that decision.
So for example cost effectiveness of our biomass conversion.
The fit in terms of a plant of that size I mean, it isn't current operation, but as we look towards the future the size and the operational characteristics of the plant.
How compatible that is with the energy system.
A number of other factors in consideration so I'd say that at this stage.
<unk>.
That that consideration is.
Still I would say in the early stages. There has been no conclusions no detailed analysis and certainly we haven't filed anything to the PUC yet we don't have any.
<unk> with Aes.
As far as your question about whether that would impact our thoughts on future procurements.
No.
The answer is no at this stage for Oahu, we are <unk>.
<unk>, considering what would be the next wave of renewable energy projects online thats actually happening as part of our integrated grid planning IGT process and.
And thats going to continue and as part of that process will we will we will be considering.
The addition of new resources and.
So I would say that it's all just being part of our resource planning.
Alright excellent guys I'll pass it over thank you again and see you soon.
Yes.
Theory EI.
Thank you we now have the next question on the line from Paul Patterson from Glen Roxanne Satiate Siple other things your line.
Good morning.
Hi, Bob Hey, Paul.
Congratulations of course, everybody and of course, the colony and.
Well, it's a day in history.
Yes.
I know in 37 years Paul.
[laughter].
Right.
Just thinking about that and the nice thing is I always kid, Julie because I do love the IR function since I started at here many years ago, but you all remember Shelley as well because she was with me and IR too.
Yes, absolutely.
So so.
A couple of things first of all.
The pin proceeding, which seems to be sort of I guess never ending.
So there's next generation that we have here.
What struck me was sort of the language of sort of this quote unquote, a sense of urgency regarding some of the issues there.
And I know that there are some issues.
<unk>.
Illinois, and what have you but.
Tony speaking.
How should we think about that in the context of everything I mean.
Sure.
This upcoming proceeding stakeholders, we're talking to we're talking.
Amongst each other.
How should we think about but.
Just how significant that proceeding will be fees would be what we've already been through.
So Scott another one for you.
Yes, Hi, Paul.
Well the issues the particular issues that the commission.
Described with.
Needing to be addressed with urgency.
Ties back to the very same issues that are being addressed in the interconnection docket and that is how are we able to get new energy resources online.
In a timely manner to be able to be sure that we have enough capacity.
Serve serve loads.
Especially here on Oahu as we see the next year's retirement of the Aes coal plant at the end of the year.
And that is that is the situation that the commission has flagged as the urgent urgent situation.
Emily on Maui as we think about in this in the coming years retirement of the Kahului power plant same same situation, bringing on additional new resources in a timely manner. So that we can smoothly transition and strip down these.
These plants.
Like I said that is being addressed in the interconnection docket.
We are actively working with all of the renewable energy project developers on <unk>.
Turning to help them maintain schedule. So that is happening in parallel to these discussions that were started in terms of the PBR pins.
So going to that discussion of these new pins.
What's important is that the.
The pens.
Or maybe the PBR framework.
As it was initially designed and established it involved a very very good collaboration between the regulators between the utility and many stakeholders.
As we continue to dialogue about the additional <unk> that may be added.
What we what we really see is that collaborative effort really needs to continue.
In our comments on the on the staff proposal coming from the PUC, we flag that hey.
Let's make sure that we have the appropriate.
Chance to talk about the issues.
These are complex issues.
We are in fact addressing them like I said in a separate proceeding in direct dealings with our independent power producer developers.
So going to the PBR pins.
Just basically.
We are fully engaged.
Understand the commission's concerns we understand the objectives, but at the same time, we also want to be sure that the PBR framework is given the chance to succeed because so much good effort was put into that in the original design.
All that makes a lot of sense I guess, what I'm a little bit confused by is that the issue on the interconnection seems to be rather a technical issue. It doesn't seem to me that it goes into.
Notably that that leads that theres, an incentive issue here like in other words, you guys are just not incentive.
Or is there enough of an incentive to deal with as opposed to just the blocking and tackling.
The legal is the sort of issues that are associated with it do you follow what I'm, saying I guess that's it.
Hey, Bobby.
Yes, I would say this I would say the current set of pins that that we have including for example, Rps.
Including the interconnection, Tim I mean, we have incentives in those terms.
So there is no. There is no reason why we would want to stand on or sit on any of these projects and in fact.
Even in our announcement today about our carbon reduction commitment.
For us it really is that all paths lead to acceleration of renewable energy projects getting these projects interconnected and so on.
So we believe that thats.
I think that's appropriate.
And we again, we want to make sure that we are adequately addressing the commissions.
Since of priorities and certainly showing urgency. So we think we're aligned I think where we have expressed concerns in our comments is that.
Again, not put pens in which.
Or perhaps counter to what we're all intending to achieve.
Okay, Great and then.
I guess still to be determined I believe that the non wires alternatives PBR and stuff.
The renewable procurement.
Where do we stand on that I guess and I mean, I think that's separate from this stakeholder and stuff that we just discussed.
Correct me, it's sort of hard to follow all but but but.
When might we get that and do you see any potential upside or impact one way or the other regarding those those.
Those things.
Thanks.
Yes.
The commission made clear when they issued the.
<unk> for the PBR framework that they wanted to have the ability to consider <unk> going forward.
Case by case.
New priorities get added or.
Remember there were a bunch of.
Additional issues that were flagged in the original PBR proceeding that were decided that for now, let's try and track and better understand how they work for example, resilience electric transportation.
So I would say that those particular issues that you asked about fall into that bucket.
We fully expect that over the course of time, there will be more discussion about.
What a correct inadequate Tim might be for for non wires alternatives and so on so.
I would say it's on deck.
And more to come.
Okay fair enough.
I'll leave it there and.
Okay great.
Congratulations again to everybody take care.
Thanks, Paul Thanks, Paul.
Thank you Paul.
As we have no further questions on the line I would like to hand, it back to Jimmy.
We have another question on the line.
From Jonathan Reeder of Wells Fargo. Please go ahead Jonathan.
He made the wire.
Yes, sorry.
A couple of days.
Yes.
Maybe Greg I missed your direct explanation of what's changed your expectations of the utility now being at the midpoint or slightly above guidance versus the lower half before is it lower reliability, Tim penalties or better delivery of the cost savings, which change there.
Okay.
Yes.
The year to date performance has clearly indicated that we're on track we felt the need to certainly narrowed the range.
And as we gain confidence around their ability on the we've been tracking the efficiency for some time and we had confidence that that would be achieved but there is some volatility in the potential <unk> that you have to track and account for.
And and just other elements. So is it all pulled together we took a fresh look at it for the quarter.
Deep consultations with pain, Scott and team as well they are tracking they're tracking well and in line with plan and probably slightly ahead, we had some minor minor wins on the upside on in the tax R&D credit. Some other things that came through that just pushed us over the line there.
Hey, Greg This is <unk> here I wanted to add a couple more points to what Greg mentioned and we talked in the prepared remarks about the completion of the restoration as a substation and so.
Looking at our reliability pins and probably looking at a slight improvement over what we had.
Generally forecasted so that is one item. The other item is as we continue on our cost efficiency plans.
<unk> include.
Looking at how we schedule and plan our work manage the resources to get it done in terms of our staffing count all of those things.
That's also providing.
Some of that.
Benefit.
Two of being above the midpoint on the on the EPS.
Okay, and then <unk>.
The fuel cost sharing Tim is that expected to kind of be maxed out.
At the highest level given the rise in.
Global energy costs in oil.
Yes, So let me comment a little bit about that.
The way, we record the fuel cost risk sharing mechanism.
Impact is there.
There is an amount that is accrued every month. So we've got nine months of the full year impact embedded already in our earnings up to date I will say that because of rising fuel prices. We have an amount of of penalty. If you will already reflected through the third.
Quarter.
For the fourth quarter, we do expect a little bit of uptick in our fuel prices and we've baked additional penalties in our guidance.
But I don't expect the full amount of penalty to be recorded for the year, but again I did want to emphasize the Q4 forecast is already embedded in our guidance.
Okay. That's very helpful. So alright, I'm going to leave it there and save the rest of my questions for <unk>.
Looking forward to see you guys will have your eyes going away party there I guess.
Thanks, Jonathan we'll see you then.
Yeah.
Thank you we have no further questions benign I will hand, it back to Julie.
Thank you all for joining us today. Please reach out so do you have any further questions.
Mahalo again, Connie for your leadership and of course, congratulations on your last earnings call.
Thanks, everyone have a great weekend and see many of you at EI.
Okay.
Thank you.
Ladies and gentlemen, this does conclude the Q3 2021 Hawaiian Electric Industries earnings Conference call. Today's call has now concluded. Please enjoy the rest of your day.
Okay.