Q4 2024 Hawaiian Electric Industries Inc Earnings Call
Haris: As a reminder, forward looking statements will be made on today's call.
Haris: 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.
Haris: Today's presentation also includes references to non-GAAP financial measures.
Haris: Refer to the information contained in the slides accompanying today's presentation for definition of information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure.
Scott Few: Now Scott few will begin with his remarks.
Scott Few: Hello Hook, a cool welcome everyone for today's call I'll start with an overview of the important accomplishments we've made over the past year and touch on our priorities going forward.
Scott Few: I'll, then turn it over to Scott to get him, who will discuss the financial implications of recent announcements and walk through our financial results. We'll then open it up for questions.
Scott Few: The past year was pivotal in the history of our company and I'm proud of what we've been able to accomplish.
Scott Few: Since August of 2023, we've told you that our objective is to remain a strong financially healthy enterprise best position to serve the communities in which we operate.
Scott Few: This objective has guided us throughout the past 18 months as we've taken prudent measured actions to maintain our financial strength in the wake of the Maui wildfires in.
Scott Few: In November 2024, we came together with other parties to sign final settlement agreements in the Maui wildfire tort litigation.
Scott Few: We did so on an expedited basis significantly enhancing clarity for our company's path ahead.
Scott Few: This milestone accomplishment was the culmination of months of negotiations and once fully approved by the court. The settlement will provide an accelerated path to recovery for those impacted by the fires.
Scott Few: Throughout the year, we took numerous actions to bolster our liquidity and ensure hei is in the strongest possible financial position as we work towards finalizing the settlement.
Scott Few: The successful equity offering we closed in September resulted in $558 million in net proceeds fully funding our first payment under the settlement.
Scott Few: We also strengthened our liquidity by putting in place a $250 million ATM program at the holding company and a $250 million accounts receivable backed credit facility at the utility.
Scott Few: With these collective actions we ended 2024 in the strongest liquidity position in our company's history.
Scott Few: In late December we completed the strategic review process for American savings Bank.
Scott Few: This transaction was the result of a deliberate and thoughtful process involving numerous potential buyers.
Scott Few: After evaluating a range of factors, including transaction certainty proceeds regulatory considerations and potential stakeholder impacts our board concluded that selling the bank to a group of independent investors, what's the best step forward.
Scott Few: Our sale of 91% of our bank simplifies hei strategy and regulatory position and allows us to focus on our core utility business.
Scott Few: Proceeds will be used to reduce holding company debt strengthening our balance sheet and increasing financial flexibility going forward.
Scott Few: Following the Maui wildfires, we also said that the utility would quickly implement enhanced wildfire safety measures, while working closely with the community and other stakeholders to develop an updated long term wildfire safety strategy.
Scott Few: In 2020 for the utility implemented impactful measures on an expedited basis and just last month submitted its updated long term wildfire safety strategy, which I'll discuss in more detail shortly.
Scott Few: I'd add that the achievements made to progress the utility's wildfire safety strategy were made while continuing to progress another key strategic initiative integrating increasing amounts of renewable is on the utility's grid.
Scott Few: The utility achieved a 36% renewable portfolio standard in 2024 up from 33% in 2023.
Scott Few: This keeps Hawaiian electric on track to reach its interim goal of 40% Rps by 2030.
Scott Few: The utility was able to achieve this milestone, while reducing customer rates and the average residential bill decreased 7% in 2024 and.
Scott Few: And finally, our utility is continuing its efforts at the Hawaii State legislature to pursue creation of a wildfire recovery fund had a mechanism to support independent power producer financing of clean energy projects.
Scott Few: I would emphasize that it's still early in the legislative process and our legislature is juggling a number of complicated issues. This year.
Scott Few: However, I am pleased that the high level of engagement amongst so many in Hawaii to address these critical issues.
Turning to the next slide we remain deeply committed to advancing wildfire mitigation efforts.
Scott Few: Since launching an expanded wildfire safety strategy in the wake of the Maui wildfires. The utility has rapidly advanced efforts to reduce the risk of wildfires.
Scott Few: In 2024 alone the utility invested approximately $120 million to make wildfire safety improvements.
Scott Few: In 2020 for our utility launched the public safety power Shutoff program tested and replace thousands of utility poles upgraded miles of overhead power lines.
Scott Few: Cleared intrusive vegetation near electrical equipment and installed weather stations and AI assisted high definition video cameras across our service territories.
Scott Few: These initiatives reflect our ongoing dedication to supporting Hawaii's resilience and safety in the face of increasingly severe weather events I.
Scott Few: I am pleased that we were able to make such substantial strides in 2024 to reduce the risk of wildfires ignited by utility equipment.
Scott Few: In January the utility filed an updated wildfire safety strategy with the PUC.
Scott Few: The updated strategy builds upon the immediate actions taken in response to the August 2023, wildfires and establishes a three year action plan for 2025 through 2027.
Scott Few: The cost of the plan is estimated at about $450 million with approximately $400 million expected to be capital expenditures.
Scott Few: The ultimate objective of the plan is to identify and implement measures that can accomplish the greatest risk reduction, while balancing affordability and reliability for our communities.
Scott Few: The utilities approach to accomplish this is detailed on slide five.
Scott Few: I'd note that implementation of the wildfire safety strategy will be an evolving process, which will include annual updates to the PUC and ongoing assessments of wildfire risk mitigation measures and environmental conditions.
Scott Few: Lastly, I'll note that on February six the Hawaii Supreme Court heard oral arguments in the preceding to resolve the outstanding issues with insurers, who filed subrogation claims related to the 2023 Maui wildfires.
Scott Few: Just a few days later on February 10.
Scott Few: <unk> issued a unanimous decision in our favor.
Scott Few: Court's decision aligns with our position on key questions that arose from insurers challenges to the settlement.
Scott Few: Clarifies that once the settlement becomes final insurers seeking to recover amounts paid to settling plaintiffs cannot separately suite defendants.
Scott Few: We're pleased that the courts decision aligns with our arguments and was issued on an accelerated timeline.
Scott Few: The decision help smooth the settlement for bringing increased certainty to those who suffered loss into Maui wildfires, while providing more clarity for our company's path towards reestablishing financial stability.
Scott Few: This was a key step in finalizing the settlement and the second circuit Court in Maui can now consider the settlement agreements where final judicial approval.
Scott Few: We expect our first payment obligation under the settlement to become due late this year or early next.
Scott Few: In summary, with our simpler more focused business model strong liquidity position and measures in place to protect against the risk of catastrophic weather events going forward.
Scott Few: We believe we are well positioned to continue executing on our priorities.
Scott Few: Looking ahead, we will continue to focus on obtaining supportive legislation.
Scott Few: Analyzing and implementing the settlement agreement in the Maui wildfire tort litigation and ultimately returning to investment grade.
Scott Few: With that I'll now turn the call over to Scott to get them.
Speaker Change: Thank you Scott turning to slide seven I'll first touch briefly on the previously announced ASB transaction.
Speaker Change: At the end of 2024, we closed on the sale of 91% of ASP for $405 million based on a total valuation of $450 million. We are pleased to have completed this transaction in the timeline that we did with simultaneous signing and closing the structure allowed us to.
Speaker Change: Avoid lengthy and uncertain regulatory reviews.
Speaker Change: The net proceeds of approximately $380 million will be used to pay down holding company debt.
Speaker Change: Asps in 2024 results are presented as discontinued operations in the consolidated financial statements for.
For the full year 2024, the net loss from discontinued operations totaled $103 million compared to net income of $53 million in 2023.
Speaker Change: $103 million loss includes a net loss on the sale transaction of approximately $116 million, which is net of a $2 $4 million tax benefit.
Speaker Change: Excluding wildfire expenses and goodwill impairment recorded in the second quarter and the net loss recorded due to the sale transaction Asp's core net income for 2024 was $79 million the.
Speaker Change: The remainder of my comments on the quarter's results will focus on our continuing operations.
Speaker Change: For the full year 2024, we generated a loss from continuing operations of $1 3 billion.
Speaker Change: The results include wildfire settlement accruals of $1 9 billion pre tax as well as the impacts of other Maui wildfire related expenses. The results also include the $35 million asset impairment recorded at Pacific current in the third quarter.
Speaker Change: Excluding these items consolidated core net income was $124 million compared to $152 million in 2023.
Speaker Change: Utility core net income was $181 million compared to $195 million in 2023.
Speaker Change: The decrease in utility core net income was driven by higher O&M expenses, which included increased wildfire prevention related expenses, such as vegetation management.
Speaker Change: Holding company core net loss was $56 million compared to $43 million in 2023.
Speaker Change: Higher core net loss was driven by lower Pacific current net income due to outages at both the harm Aquila and Montney Papa generating facilities.
Speaker Change: Turning to our liquidity on the next slide.
Speaker Change: As of the end of the fourth quarter, the holding company and the utility had approximately $566 million and $184 million of unrestricted cash on hand, respectively.
Speaker Change: The holding company cash balance includes the approximately $380 million from the ASB sale that will be used to retire debt.
Speaker Change: In addition, $479 million has been set aside in our wholly owned subsidiary created for the specific purpose of holding the first installment payment pursuant to the Maui wildfire settlement. This is included in restricted cash on the balance sheet.
Speaker Change: Looking ahead, we will continue to prudently manage our liquidity as we work through finalizing a settlement and as we formulate financing plans for future settlement payments and utility capital expenditure needs at that let's open up the call to questions.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: I'd like to withdraw your question simply press Star one again please.
Speaker Change: Please ensure your speaker phone and that your phone is not on mute when called upon thank you.
Mike: Your first question comes from Mike <unk> with Evercore. Your line is open.
Mike: Alright, thanks for taking my questions.
Speaker Change: Hi, Mike.
Mike: Yeah, Hi.
Speaker Change: The Hawaii Supreme Court issued a ruling that the insurers hampering their separate legal action against the defendants I was just wondering if you could talk about your confidence level that the settlement will proceed forward without any more interference from the insurance companies whether the case.
Mike: The appeal to the U S Supreme Court.
Speaker Change: The insurers try to make up.
Speaker Change: Other arguments maybe they try to say that settlement was reached in bad faith or pursue another avenue to disrupt it.
Speaker Change: Yes, no. Thanks for the question Mike So.
Speaker Change: The bottom line upfront the conclusion of the Hawaii Supreme Court decision that was a very positive in a major step towards finalizing the settlement agreement. So we're really really pleased with the outcome.
Speaker Change: We are awaiting for the written order to come from the Supreme Court, which will probably be issued in the coming weeks.
Speaker Change: At some point, we'll move to dismiss the subrogation insurance claims.
Speaker Change: Taking into account the Hawaii Supreme Court ruling.
Speaker Change: No I can't really say when we would time that motion, we're still we're still considering the timing on that motion.
Speaker Change: Next steps going forward too to finalize the settlement.
Speaker Change: The court would be we expect the class and individual plaintiffs.
Speaker Change: <unk> announced their agreement on how they're allocating the aggregate settlement amount beats.
Speaker Change: Between the class one in the in these individual fund.
Speaker Change: And after that occurs then.
Speaker Change: And then the class will move for preliminary approval and once that is granted begin to notice process.
Speaker Change: After that is there is going to be an opportunity for claims to opt out or object to the class settlement.
Speaker Change: Obtained good faith settlement determinations and final class approval. So in terms of timing, we expect preliminary approval in the second quarter <unk>.
Speaker Change: Objection and opt out deadlines to be in the third quarter and the approval or hearing to be in the fourth quarter of 2025.
Speaker Change: Of course timing of all of this could shift.
So, but let me let me get back to the overall, our outcome and confidence level. So obvious. This is the outcome we were hoping for.
Speaker Change: And it's just a matter of working through the process now.
Speaker Change: Got it thanks, and then on Capex, you highlighted you're going to invest nearly $400 million in wildfire safety over the next few years I think you previously said.
Speaker Change: Maintenance capital is about $300 million a year just wondering if you could share what.
Speaker Change: Total investment level, we should expect over the next few years.
Speaker Change: Rate base growth that could drive in that and then also how we should think about your <unk> to debt target as you finance the settlement payments.
Mike So: Okay Mike.
Mike So: I'm going to have Paul Ito Hawaiian electric CFO respond to your questions.
Paul Ito: Hey, Mike. Thanks for the question. So right now we are currently refining our three year capital forecast in light of the recently filed.
Speaker Change: Fire safety strategy and in addition, where we're preparing for a potential rate case.
Paul Ito: And this refinement process included.
Paul Ito: Number one prioritizing the projects and then number two assessing the availability and cost of resources, both internal and external so subject to the foregoing caveats.
Paul Ito: Over the three years, we do expect an increasing level of potential capex.
Paul Ito: For 2025, we are targeting to be moderately higher than 2024, probably in the $350 million to $375 million range.
Paul Ito: In 2026, and 2027, we do have additional opportunities for Capex. So as you mentioned, our baseline capex would be the first layer that's again in the $300 million range.
Paul Ito: We talked about the wildfire safety strategy in terms of.
Paul Ito: $400 million roughly over the three years, but in addition to that we also have approved EPR RM projects that we would start work hard.
Paul Ito: There is there are a number of those projects. The largest ones include our buyout Repowering project is a 253 megawatt repowering, we have our way and the best.
Paul Ito: Project Army privatization and some resilience work, but in aggregate if you take all of those together.
Paul Ito: These projects.
Paul Ito: Generally add roughly call it $150 million.
Paul Ito: $175 million in 2026, and then somewhere in the range of $200 million to $250 million in 2027, so again subject to resource availability, but in broad strokes. That's the that's the level of Capex that were.
Paul Ito: We're forecasting.
Paul Ito: In addition to that we do have some additional EPR and projects that are not approved of course subject to approval.
Paul Ito: Approval by the by the PUC.
Again rough.
Paul Ito: Estimates, but I think it gives you a general sense of our Capex plan going forward and then I'll turn it over to Scott to talk about the <unk> to that question.
Paul Ito: On the on the <unk> side.
Scott Few: We're not going to give you like a specific target other than to say, we're going to target investment grade credit ratings and so I think you understand.
What that means from an <unk> to debt perspective, and if you look historically, where we were.
Scott Few: We tended to be I think higher than the peers and we're just going to try and stay in the allowed ranges from all three of the agencies again to maintain or at least not maintained but targeted an investment grade rating.
Scott Few: Got it Thanks, and then lastly for me.
Speaker Change: In the Hawaii Legislative session.
Scott Few: I know it's early.
Scott Few: With some concerns about customer bills. There is an amended version of house Bill 982 that proposes that about roughly half of the 1 billion wildfire insurance fund will be financed by shareholders with the other half by customers through securitization.
Scott Few: I was just wondering based on your plans to finalize finance the settlement with a combination of debt and equity and the goal to return to investment grade.
Scott Few: In areas such as this.
Scott Few: Where you have to finance 500 plus million from on.
Scott Few: On behalf of investors.
Scott Few: Obviously large relative to the size of your company how would you think about financing that anything you can share there.
Mike So: Yes, Mike.
Mike So: Like I said in my earlier comments. It is very early in the process and Theres a lot of debate going on.
Mike So: I'll note that in the most recent version of that Bill the actual amounts that would possibly be coming from shareholders was was blanked out. So to me. It's an indication that it is early in the process I think it's fair to say that everybody, including the utility is very focused on impacts of customer on customers.
Mike So: But we'll just have to see how this plays out.
Speaker Change: Great. Thanks for taking my questions.
Mike So: Thanks, Mike Thanks, Mike.
Mike So: Once again, if you have a question it is star one on your telephone keypad.
Moderator: Your next question comes from Julien Dumoulin Smith of Jefferies. Your line is open.
Speaker Change: Hey, good afternoon. Thank you guys very much for the time I appreciate it.
Speaker Change: Thanks Julien.
Speaker Change: Hey afternoon.
Speaker Change: Hey, just wanted to pick up on that last point, there, but just wanted to understand how you guys are thinking about framing.
Speaker Change: The wildfire legislation, maybe perhaps firstly.
Speaker Change: Youre building stakeholder to support a we got a crossover day coming up here in the next handful of weeks can you speak to a little bit about your successes, thus far that front I'll note for for instance, the Senator who seemingly prevented this bill last time from coming out of the committee has sponsored the new iteration I find that notable.
Speaker Change: And then separately RBC last go round you didn't have the settlement in hand, and so presumably that should have unlocked a separate set of pathways and stakeholders, but I'd be very curious to see how you would set expectations of both what the major building blocks are that are viable and then b process and what we should be expecting on these upcoming crossover dates I think the first one is on March six if I got it right.
Speaker Change: Yes.
Speaker Change: So the way I'd think about it Julian is yes, there has been a lot of positive momentum, especially when we compare against where we were last year last session.
Speaker Change: We.
Speaker Change: A year ago, we didn't know what the outcome of the settlement discussions would be we.
Speaker Change: We werent quite sure in terms of our overall.
How quickly we could move through.
Speaker Change: The litigation process and so on so where we are today is in a much more.
Speaker Change: Positive stance and Theres a lot more clarity so with that that's provided the basis for these discussions to resume in the legislature and yes, there are always going to be some.
Speaker Change: Some pretty pretty tough questions coming about in terms of how do we manage impacts on customers.
Speaker Change: How do we balance the needs of our customers our shareholders.
Speaker Change: While we still are moving towards strengthening the financial.
Speaker Change: Positioning of the company. So that we can continue to continue to provide service. So those are all swirling around during these legislative discussions right now.
Speaker Change: The way that I will always remind people is that we fully expect that we have to have these discussions where we are right now in the process at the legislature.
Speaker Change: Yes. It was very I think it was a very positive sign.
Speaker Change: Our state Senator was willing to reintroduce the bill <unk>.
Speaker Change: Again, it's to tee up the discussion to debate the issues.
Speaker Change: I think it was very positive when you read the introductions to those bills in terms of the recognition why establishment of something like a wildfire recovery fund is good policy and will provide benefits for customers for the company and the state of Hawaii.
Speaker Change: <unk>.
Speaker Change: I think that what we would expect is that theres going to be continued ongoing debate and we will be participating in that there are certain elements of the legislation that are very important to us in order to have the benefits of balancing the risk to customers as well as to shareholders.
Speaker Change: We will just be part of that process and.
Speaker Change: I'm.
Speaker Change: Im just very very pleased in terms of like I said earlier. The fact that we are in the mix. We have these bills going forward and.
Speaker Change: We're having the debate.
Speaker Change: And maybe just as a follow up we can address securitization directly I mean, obviously the rating agencies have taken a fairly hard line on this subject I mean can you speak a little bit to the prospects of getting.
Speaker Change: Something that would suffice with the agencies here and maybe speak to that issue.
Speaker Change: A little bit further both in terms of the prospects.
Speaker Change: In process here in the legislature as well as to the new answer exactly what is being prescribed by the agencies at this point in time, if we can.
Speaker Change: Well, let me let me comment first on.
Speaker Change: With the perspective of the legislative discussions regarding securitization.
Speaker Change: <unk>.
Speaker Change: Given all the discussion that started last session and have that continue to this year I think there is a fairly good understanding now of why securitization makes a lot of sense in terms of being able to.
Secure lower cost financing, which ultimately goes towards benefiting our customers. So I think that's a positive.
Speaker Change: As far as your the second part of your question what are the expectations of the rating agencies.
Speaker Change: I'll have Scott to get a comment on that yes, I think.
Speaker Change: That the agencies all three of them.
Want to see some sort of <unk>.
Backstop funds.
Speaker Change: Among other things.
Speaker Change: To enhance ratings again to Scott's earlier point I think it's too early in the process from a legislative process standpoint to determine where that's going to shake out.
Speaker Change: And if we get it its obviously credit positive.
Speaker Change: Or if we get some sort of bill that resembles whats been introduced in the legislature it'll be credit positive.
Speaker Change: If we don't we'll just continue to work with the rating agencies and develop a plan to get to investment grade as best we possibly can but again I think it's just too soon to speculate.
Paul Ito: Yes, absolutely and just in terms of creating a pathway here for funding I know that you said a second ago was blanked out in the 982 about any shareholder funding, but can you speak to I mean, Scott you've been very diligent thus far and in managing the company through this difficult period.
Speaker Change: In terms of ensuring an ongoing.
Speaker Change: Yeah.
Speaker Change: Access to capital and more specifically are cash flow positive backdrop for the core company and if you think about the findings indeed, what <unk>.
Speaker Change: <unk> a clear.
Speaker Change: Clear latitude through the near and medium terms.
To find resolution here out of this all yes, and again, we haven't given any direct guidance in terms of how we will fund the balance of the settlement payments as we've said on previous calls.
Speaker Change: But.
Speaker Change: As we go forward, we're continuously looking at the capital markets. We have in my opinion strong access that was demonstrated by the equity deal that was done in September which you know was well oversubscribed.
Speaker Change: The utility.
Speaker Change: Refunded, the $50 million maturity that they had coming due.
Speaker Change: In January they did that prior to the end of the year, we've had a number of firms reach out to us on refinancing the $50 million that comes due at hei in December.
Speaker Change: And we are receiving.
Speaker Change: Inbounds.
Speaker Change: Quite regularly on what's going on in the capital markets or access both to the debt and the equity markets. So I feel very <unk>.
Speaker Change: Confident about our access going forward.
Speaker Change: And again, we pre funded that payment approximately a year in advance and so we really have a lot of time.
Speaker Change: To continue to develop our thoughts around how we will finance the balance of those payments.
Speaker Change: Right, let me ask that maybe more directly here no equity raise contemplated.
Speaker Change: At least in the medium term from what I can tell based on what you would need barring any changes Michael legislature, yes. The answer to that question is yes, we don't have any anticipated equity raises.
Speaker Change: And we don't have any anticipated drawdowns or use on the ATM facility either.
Speaker Change: Thank you so much for that clarity I really appreciate you being a transplant about it. Thank you so much.
Thanks Julie.
Scott Few: This concludes the question and answer session I will turn the call to Scott <unk> for closing remarks.
Speaker Change: Mahalo to everybody for calling in today. So in closing 2024 was a year of really significant achievements in the face of unprecedented challenges facing our company.
Scott Few: We really feel that we've made rapid progress towards rebuilding the financial strength of our enterprise.
Scott Few: And again just want to highlight that with the recent favorable Supreme Court decision, we are well positioned to navigate the path ahead.
Scott Few: Again, I want to thank our shareholders a great many of whom are neighbours here in Hawaii for your continued investment and hei.
Scott Few: We greatly appreciate your support as we continue to help our communities move forward model.
Scott Few: This concludes today's conference call. Thank you for joining you may now disconnect.
Scott Few: [music].
Scott Few: Okay.
Scott Few: [music].
Scott Few: Okay.
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Scott Few: Okay.