Q1 2024 Hawaiian Electric Industries Inc Earnings Call
Good day my name is Brianna and I'll be your conference operator at this time I would like to welcome everyone to Hawaiian Electric Industries, Inc. First quarter 'twenty 'twenty four earnings conference call. Please.
Please note that this call is being recorded all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
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I will now turn todays call over to Matteo Garcia director of Investor Relations. Please go ahead.
Thank you.
Welcome everyone to Hei as first quarter 2024 earnings call. Joining me today are Scott C U Hei, President and CEO, Scott to Ghetto, Hei Executive Vice President CFO, and Treasurer, Shelly Kimura, Hawaiian electric President and CEO, and Sharon Nishi American savings Bank, President and CEO.
And other members of senior management.
Our earnings release and a presentation for this call are available in the Investor Relations section of our website.
As a reminder, forward looking statements will be made on today's call.
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 today's.
<unk> also includes references to non-GAAP financial measures.
You should refer to the information contained in the slides accompanying today's presentation for definitions information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure.
No Scott to your will begin with his remarks.
Hello Hook, all cool welcome everyone.
For today's call I'll start with key updates regarding the moly wildfires, followed by operational updates and then Scott to get O will walk you through our first quarter financial results before we open it up for questions.
We continue to work in earnest with key stakeholders to help our communities recover from the devastating impacts of the Maui wildfires.
Last quarter, we discussed the governor Josh screens 100 initiative.
Which is intended to help the families most impacted by the fire appeal and to help our state move forward.
The first phase of one launched on March 1st and have seen a steady uptick.
58, total registrations have been received thus far including 43 from families of the students and 15 from injured survivors.
On April 29th Governor Green announced that the registration deadline has now been extended to May 31.
The Governor has said that the deadline for completed claims forms will be July one.
Annual Legislative session concluded in early May and last week, the Governor signed into law Senate, Bill 582, which sets aside critical funding to help address the ongoing Bobby wildfire recovery efforts, including the states contribution to the $175 million, one or how to fund.
Although we are disappointed that we ran out of time in this legislator session to pass legislation supporting the key priorities, we laid out on our last earnings call. Our state's lawmakers and leadership remain highly engaged in determining how to design wildfire legislation that makes sense for Hawaii, our customers and our company.
Legislation that creates a framework to reduce wildfire risk is critical to ensure Hawaii can attract low cost capital, which ultimately lowers the cost to customers of needed investments.
Our state's leadership recognizes this and last week Governor Green announced the formation of a new climate advisory team that will play a critical role in drafting comprehensive climate resilience policy.
As one of its first projects the advisory team will recommend steps to create a fun to mitigate the impacts of climate change.
And to develop a fair and comprehensive structure to resolve claims related to feature disasters in our state.
The Governor has expressed the funds necessity for stabilizing the insurance market and addressing the financial burdens of rising from the increased impacts of climate change.
We will continue to work constructively with Governor Green, our regulators and other parties to advance solutions that help keep what you safe and will stabilize our energy future in the face of increasingly severe weather events.
Last month, we saw the publication of two key reports one from the county of Maui used Department, a fire in public safety and the other from Hawaii State Attorney General.
Both the fire departments after action report Andy.
And the attorney generals Lahaina fire comprehensive timeline report.
We're consistent with our understanding of the events that took place on August eight.
Namely that our morning fire appears to have been caused by power lines that fell in high winds.
The Maui County Fire Department responded to this fire reported that it was 100% contained and later declared extinguished.
Second afternoon fire began in the same area later that day after Hawaiian Electric's power lines in West Maui had been de-energize for more than six hours.
Neither of the reports released last month focuses on the cause of the Maui wildfires.
Cause of the afternoon fire that devastated liner has still not been determined.
And is the focus of a separate investigation being conducted by the bureau of alcohol tobacco and firearms.
Turning to an update on litigation.
As of May nine Hei and Hawaiian Electric company have each been named as a defendant in approximately 400 lawsuits by plaintiffs, claiming losses related to the August eight windstorm and wildfires.
Subrogation claims from about 160 different insurers with exposure in Maui have also been filed.
The Moly Circuit Court has set a September nine 2020 for a trial date for six cases concerning the fires in upcountry Maui.
As a reminder, those fires were separate from the fires that occurred in China.
The upcountry fires occur in the old Linda and cooler areas of Maui over 35 miles from liner.
Fortunately there were no fatalities in the upcountry fires and relatively few structures damaged in comparison to the line of fires.
I'm always circuit Court has also set on November 18, 2024 trial data for.
For four of the line of cases filed.
No trial dates have been set in cases pending in the Oahu circuit court or in Federal Court.
Turning to operational updates on slide four the utility continues to advance wildfire mitigation and resilience efforts and in the first few months of this year progressed applications for federal funding to help limit the cost of these investments to customers.
In February <unk>.
Ryan Electric received PUC approval for its five year $190 million grid resilience plan, enabling you to lead to move forward with finalizing $95 million and department of energy infrastructure investment and jobs Act funding by matching it with $95 million and rate recovery.
In addition to this.
The utility is also pursuing $450 million of matching federal funding for $900 million of projects addressing wildfire focus grid resilience grid modernization and grid innovation projects.
While pursuing these longer term projects utility continues to take more immediate action to address wildfire risk.
Over 35% of the Utility's 2024 capital budget nearly $120 million is dedicated to wildfire mitigation work.
The utility is implementing enhanced wildfire operational strategies and practices, which will include a public safety power Shutoff program as a last resort.
Investments are also being made to improve situational awareness through advanced technologies, including cameras utilizing artificial intelligence.
Utility also continues to progress grid hardening work these.
These interim wildfire safety measures are part of the utilities longer term wildfire safety strategy, which is being developed collaboratively with our communities and other stakeholders and which we expect to begin implementing in 2025.
Turning to the bank ASP.
<unk> continues to perform well.
And in the first quarter the bank saw the benefits of the strategic actions undertaken in the fourth quarter of 2023.
As Youll recall last quarter, the bank sold low yielding securities and reduced high cost deposits with the proceeds.
We saw the benefits from that balance sheet repositioning this quarter.
<unk> cost of funds decreased and net interest margin expanded.
Leading to improved profitability compared to last quarter.
The Bank also released a portion of the reserves initially taken following the wildfires on Maui.
Reflecting borrowings resilient economy and better than expected outlook.
Asp's loyal and long tenured deposit base remains stable and as of March 31.
86% of deposits were FDIC insured or fully collateralized.
Customer deposits are safe and there is no risk to deposits as a result of legal claims related to the wildfires.
I will now turn the call over to Scott to get off who will discuss our financial results.
Thank you Scott I'll start with the results for the quarter on slide six.
We earned consolidated net income of $42 1 million and EPS of <unk> 38 in the first quarter.
This included $7 2 million after tax or about seven per share of wildfire related expenses net of insurance recoveries and deferrals.
Excluding these expenses core net income and EPS were $49 3 million and <unk> 45 per share compared to $54 7 million and 50 per share in the first quarter of 2023.
Utility net income included $5 million of wildfire related impacts net of $7 $4 million of insurance recoveries and $5 9 million of deferred costs. The.
The holding company and other segment included $2 $3 million of wildfire expenses net of $1 $9 million in insurance recoveries net wildfire costs were immaterial to bank net income.
The decrease in utility net income was driven by higher O&M expenses due to increased wildfire mitigation and other wildfire related costs.
Bank net income benefited from higher net interest margin, resulting from the strategic balance sheet repositioning executed last quarter and also benefited from the reserve release that Scott mentioned.
On a consolidated basis core ROE remains healthy at nine 5%, excluding wildfire impacts this is down from 10% ROE in the first quarter of last year due primarily to lower utility and other segment earnings partially offset by higher bank earnings.
Utility core ROE was down 20 basis points to 8%, excluding wildfire impacts in bank core ROE was up seven basis points to about 15, 6%.
Okay.
The approximately 7% decrease in the utilities EPS contribution was driven by an 11% increase in O&M expenses.
<unk> of the increase was wildfire related primarily driven by the settlement of indemnification claims asserted by the state.
The remaining O&M increase included higher insurance costs and higher vegetation management costs.
Earnings were also driven lower by penalties for Morris heat rate performance.
These items were partially offset by increased revenues, primarily from the annual revenue adjustment and major project interim recovery mechanisms as well as increased AFDC and higher interest income.
The approximately <unk> <unk> increase in Asps EPS contribution was driven by <unk> <unk> of higher noninterest income and <unk> <unk> of lower provision, partially offset by <unk> <unk> of lower net interest income.
Holding company and other segment expenses were higher by about <unk> <unk> per share primarily from <unk> <unk> per share of lower Pacific current net income and <unk> per share of wildfire expenses as well as a small impact from tax rate adjustments.
Pacific current net income was mostly driven by a $2 6 million after tax write off from a fire at Pacific current biomass generating facility on Hawaii. The fire was started by a contractor performing maintenance on the facility.
Turning to our liquidity on slide eight we.
We continue to prudently manage our liquidity as we work through the timing and impacts of litigation related to the Maui wildfires.
As of the end of the first quarter, the holding company and the utility had $127 million and $130 million of cash on hand, respectively.
We continue to explore additional sources of liquidity and the utility accounts receivable financing facility. We discussed last quarter is awaiting PUC approval.
The PUC issued a procedural schedule for the accounts receivable facility docket earlier this week and a decision and order is scheduled for June 24th.
Once approved we expect the facility to provide up to $250 million of additional liquidity.
With that let's open up the call to questions.
We will now begin the question and answer session.
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Our first question comes from Michael and again with Evercore. Please go ahead.
Hi, Thanks for taking my question so.
So as you mentioned the fire Department report and the Ags investigation report.
Our consistent with what <unk> been saying, making the distinction between a morning fire in an afternoon fire just wondering in the event if the ETA.
<unk> report word a link.
The afternoon fire to your company just how are you.
You are thinking about your approach or your options that you have to that situation.
Hey, Mike This is Scott.
Yes, we're not going to speculate on what the findings of the Etfs report will be.
Once that report comes out will we will obviously review it very carefully and then make that determination, but we can't speculate right now.
Great and then thank you and then secondly for me.
Press reports have indicated that you may be pursuing a sale of American savings Bank just wondering if if.
There is anything you could share on that.
Yeah, Hey, Mike, It's Scott to get.
<unk>.
My comments are consistent with what we said in the past we continue to not speculate on any strategic transactions are alternatives.
Sure.
Okay, Great and then and then just quickly lastly from me.
Obviously, making progress with the first one O Hanta fund just wondering if you have a sense for when the second fund for property owners and businesses could be launch and how it might be funded and if you are planning on making a contribution to that as well.
Yes, Mike the only thing we can say is that those discussions are in progress we can't really say when or provide any details those discussions involve many different parties and we.
We absolutely just in general we feel that it provides to the extent it can provide an attractive alternative to folks to reach closure as opposed to litigation then it's worthy of our support.
Great. Thanks for taking my questions.
Thanks, Mike.
Our next question comes from Jonathan Reeder with Wells Fargo. Please go ahead.
Hey, good morning team.
Hoping you could just kind of expand a little bit on why you think the legislature's did not pass either the key piece of the legislation during the regular session.
Then.
Would you say the prospects out like a special session being convened to do so or kind of eliminated by.
Establishment.
The cat.
Team and then.
We're deferring the passage of potential legislation to 2025.
Would that be too late to provide the clarity and assistance that you all need.
Yes, Hi, Jonathan this is Scott.
So yes, while we are obviously.
Disappointed that we ran out of time to get the legislature passed.
We actually feel that we were able to make pretty significant progress across all fronts in terms of the key bills and issues.
It all the way to conference Committee.
What that really indicated was that there was a high degree of engagement and really a lot of good discussion with legislators in terms of the importance of the three initiatives that we were really promoting and again so that was the wildfire mitigation work securitization and then establishment of a.
Going forward disaster recovery fund.
What we heard in our discussions at all the way up to the very end was there is a lot of understanding that was built over the course of this session of the importance of these measures.
What happened, though was there was still a desire for further details and I think it was reported broadly that with respect to securitization and the wildfire mitigation plans there was a.
A request by some legislators were more specific information about what those plans would be what would be the cost impacts on customers and so on.
The climate advisory team that the governor stood up.
Will be very helpful to keep those discussions going in the interim before next year's session.
I think it will position everybody, including the legislature better to be able to make these critical decisions and move forward, whether or not we have a special session. Even before then is up to the legislature themselves, but I think it's a very positive that we're going to continue to engage with with the key decision makers.
In the interim.
Gotcha that makes sense.
I guess the.
The <unk> initiative at least the first phase how does that level of participation compare to your expectations and do you expect.
Materially higher given the deadline was recently pushed back.
Well I think the way that we think about it is that for everybody who is registered that is one more family that will not have to go through the lengthy.
And unpredictable litigation process so.
No. It's a good number of <unk>.
Of course, we are hopeful that it will continue to get steady uptake and we will see where we are and the governor and the others will will determine.
May 31.
Whether it gets further extended or at that point, if that's if that's where it stops but overall I think we're we're happy that there are at least a number a fair degree of.
Interest coming from the families.
Okay, and then Mike in terms of them being like firmly committed to it right.
Remind me is it like the end date like July which I think currently as July one.
The completed forms of that one like youre definitely in or people that have submitted forms can they still changed their lives.
Yes, it's a voluntary participation so at any time a family can decide.
To opt out even if they've registered or started the process.
I think that's an important component we wanted to make sure that families really had the optionality.
Okay.
Gotcha.
<unk>.
Shifting gears, a little bit and I may have missed this is Scott.
I apologize, but can you talk about the financial ramifications from the issue that the hammer.
Energy being put me out of service since like late February.
Including like the impact on Pacific.
<unk> earnings impact on potentially any utility.
Our earnings from like the higher power costs or the capex to replace one of the generators and stuff like that.
Yes, so in terms of <unk>.
We were hoping.
To get Hommock cooler and Theres two units there to the <unk> two they're both 30 megs.
Looking to get <unk> back in the next couple of weeks.
What I would tell you is when the plant is not running yes, not generating revenues, but they're also not burning fuel there is a component obviously of O&M.
That continues to run through.
But we're in the process of doing a root cause analysis in terms of what happened. There. We currently believe it's tied to a fuel issue.
And we will keep you posted on that.
Okay.
And then I think I heard you say that that $117 million, that's being spent at the utility this year for <unk>.
Wildfire related stuff is 40% of the budget.
That implies like $300 million for 2024 utility Capex is that right.
So roughly yes.
Essentially as we've mentioned previously our our Capex forecast.
Historically for 2024 were forecasting towards the lower end of that range. So that's that's in the right ballpark.
Okay. The lower end of that $3 20 to $4 30 range that was left foot out or.
That's right.
Okay.
Got you.
Okay.
Any any update in terms of like the timing of the Ags report or that's still just completely in their hands.
Yes.
It's still our understanding that they intend to release the report prior to the one year anniversary of the fires so that would be prior to August eight.
Okay great.
Thank you so much for taking my questions and good luck as you continue.
To work through the process.
Thanks, Jonathan.
Our next question comes from Paul Patterson with <unk> Associates. Please go ahead.
Hey, good morning.
Hey, Paul.
With respect to the Americans.
The taxi book.
With the valued on a tax basis.
Do you have that also.
Guys have that available.
Okay.
Yes, Paul Let me, let me ask if.
Dean to Ria, our bank CFO can respond to that.
On the tax basis is roughly around $680 million.
Okay.
And then.
With respect to the.
I apologize if I missed this the liabilities associated with all these losses do we have.
Do you have an estimate of what.
These claims.
Do you sleep.
Theyre just claims but.
What they what they stand out now.
No Paul we continue to not have that.
There is a lot of complications in terms of determining what that might be.
Including.
<unk>.
The resolution of the claims they are a determination of liability.
So cleanups would have to prove the degree that Hawaiian electric acted negligently.
And was the approximate cause of the damages.
So again, we're not through that process.
We have not concluded that a loss is probable and reasonably estimate estimable. So thats why we have continued to not have we.
We have not taken any reserve.
I understand thanks for the clarification I guess.
I was just wondering if that sort of in an aggregate amount and I realize it.
That's not what.
That necessarily would be reflective of what the what.
What the what would actually come about but I'm just wondering with all these lawsuits is there some sort of aggregate amount that does that.
If you add them all up in there.
Obviously, they are not going to be added on but I'm, just sort of curious as to what where we're at.
Is it am I correct that it's 560.
Roughly speaking lawsuits that have been filed so far.
Well as as we said on.
Earlier.
There's been about 400.
Tort claims.
And 160 or so in terms of the sub proclaims.
So it's hard for us to really try and just do a very simple math and come up with a total aggregate amount.
Okay fair enough.
Then.
I guess.
Yes.
I guess my other questions. Thanks, again pretty much been answered.
In terms of the.
We don't have a sense, whether or not theyre going to be going for a special session. I guess is that.
Just a follow up on the I forget who asked it but it.
It sounds like there may be one, but but it also sounds to me that maybe you were looking towards next year about the securitization of wildfire mitigation legislation.
Yes, I think the best way to answer that Paul is that we.
We are not the decision makers for the ledge in terms of determining if theyre going to have a special session.
We are gearing up for the next session I think that's absolutely.
A true statement and if we happen to have a special session. Before then then better yet.
Okay.
Fair enough.
Okay, Great I appreciate it have a great weekend guys.
Thanks, Paul.
This will conclude our question and answer session.
I will now turn the call back to Scott <unk> for closing remarks.
Okay.
Thank you everybody for joining our call. We greatly appreciate your interest in Hei and of course their support and our Hearts continue to go out to our communities here, especially on Maui. So thank you all.
This will conclude today's conference call. Thank you all for your participation you may now disconnect.
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