Hawaiian Electric Industries, Inc.

Good day and welcome to the first quarter 2020 Hawaiian Electric Industries, Inc. earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Julie Smolinski, Director, Investor Relations and Strategic Planning. Please go ahead.

Thank you, Brandon. And thank you, everyone, for joining us today. Apologies for the delay there. Thanks for bearing with us. Today, of course, is Hawaiian Electric Industries' first quarter 2020 earnings conference call. Joining me today are Connie Lau, HAI President and CEO. Greg Hazleton, HAI Executive Vice President and CFO, Scott Hsu, Hawaiian Electric President and CEO, Rich Wacker, American Savings Bank President and CEO, as well as other members of senior management. In keeping with our social distancing practices, our executives are in different locations today, so please bear with us if we have any delays or mixed audio quality during the call. During today's call, we'll use non-GAAP financial measures to describe our operating performance. Our press release and presentation are posted in the investor relations section of our website and contain reconciliations of these measures to the comparable GAAP measures. 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 filings with the SEC, and on our website. And now Connie Lau will begin with her remarks.

Thank you, Julie, and aloha, everyone. Mahalo. Thank you for joining us today. We hope you are safe and well. Our thoughts are with those who have been affected by COVID-19. We're grateful for the healthcare workers and the many others on the front lines providing supplies and services as we collectively weather this pandemic. Today, I'll start with COVID-19 impacts in Hawaii, plans for reopening our economy and and how our companies are positioned. Then Greg will review our first quarter results and discuss guidance before we turn to your questions. Hawaii is facing an unprecedented challenge from COVID-19, and we're especially mindful of the essential roles our companies play. Through our utility, we provide reliable electricity to keep our hospitals, homes, and essential businesses running, and through our bank, we help ensure money keeps flowing through our economy. I'm proud of the dedication of our employees and thank them for continuing to provide these essential services throughout these challenging times, even with personal risk to themselves and their families. Continuing to provide these vital services while protecting the health of our customers as well as our employees has been a core focus. In Hawaii, we talk about our special culture of aloha and of kuleana, our responsibility to others. It's a culture that we've described previously in terms of our community coming together to take care of each other and of the land and environment. And it's a culture that has served us well in managing the public health impacts of COVID-19. Our government's early actions to impose statewide stay-at-home, work-from-home orders and mandatory 14-day quarantines for all incoming travelers, both visitors and residents alike, and a whole-of-community response have succeeded in flattening the curve in Hawaii. As of May 4th, we have had, sadly, 17 deaths and a total caseload of 621 deaths. but also 16 days where new cases were in the single digits. On our most populous island of Oahu, where population density is comparable to cities like San Jose, California, we've even had multiple days of no new cases. These numbers are encouraging and have enabled us to start reopening our economy. While this is a difficult time, we believe we will get through this crisis together. Although Hawaii's tourism industry has been significantly impacted by the stay-at-home orders and the travel quarantine, the beauty of our state and the aloha of Hawaii's people will not change. Post 9-11 and post the Great Recession, tourism came back strongly. It was clear that people still wanted to travel, but they wanted to travel to a safe destination. In this crisis, we have the opportunity to rebrand Hawaii as the safest place on earth. We believe that we can demonstrate that our state will be a welcoming and safe place for visitors and that Hawaii will continue to be a very attractive place for tourism. Hawaii will also continue to remain of strategic importance for the military and federal, state, and local government will continue to play a major role here. Our housing market has also proven resilient. It was relatively stable during and after the Great Recession and continues to be characterized by robust demand for a limited supply. The public and private sectors here are collaborating to responsibly reopen our economy for both residents and visitors and also to shape what we want our economy to look like in the future. Our company's leaders are deeply involved in these efforts. In addition, Alan Oshima, former CEO of Hawaiian Electric, who stepped down just a couple of months ago, was appointed by our Governor Ige to coordinate and navigate our state's economic and community recovery in a collaborative fashion. The overarching plan has three phases. Phase one, stabilization of the number of COVID cases. Phase two, a gradual reopening and recovery of our economy. and phase three, making our economy even more resilient with strong business and job growth. We're beginning to gradually reopen our economy among local residents and preparing to later welcome visitors. Parks and golf courses have reopened, elective surgeries have resumed, and low-contact businesses such as car dealerships and automated service providers were allowed to reopen May 1st. We anticipate economic activity will increase over the coming weeks and months, with meaningful activity resuming mid to late summer and significant recovery by year end. Yesterday, our University of Hawaii Economic Research Organization updated their forecast for Hawaii's economic recovery, and they believe that local economic activity will return by 35 to 45 percent in May and June, and 75% by year end. Tourism will take longer, likely beginning to return late July, with arrivals by year end reaching half of their normal levels. This reopening gives our state a unique opportunity to consider the future of our economy, and there, too, we're looking at doing it responsibly and ensuring that the choices and investments we make move us towards a more sustainable economy. We're thinking about the right level of tourism that ensures a good experience for visitors and is sustainable for our environment, our lands, our economy, and our communities. As a company, we're working to support and advance our state's recovery. At our bank, we're focused on building the innovation economy to diversify and expand job opportunities. At our utility, we continue to partner with stakeholders to progress clean energy projects and identify opportunities to rebuild with Hawaii's green economy goals in mind. And we remain committed to our state's 100% renewable portfolio standard and carbon neutrality goals. Protecting the health and safety of our employees is Helping our customers and supporting our community through this time have been core goals for our companies. To protect employees and customers, we implemented a mandatory work-from-home policy for employees who are able, and we instituted the use of discrete work teams to increase physical distancing for those employees who must be on the job, such as our linemen and power plant operators. We also scaled back our open bank branches, and implemented extensive cleaning and physical distancing precautions for those that remain open. The bank has seen strong increases in online account enrollments and mobile usage, which is encouraging and should help keep reducing costs for routine transactions over time. As the state and county stay-at-home orders get phased out over time, we will likely phase back into full operations albeit with new practices to maintain health and safety. We've been pleased that our liquidity and balance sheet strength of our utility, bank, and consolidated enterprise have enabled us to support our customers in this uncertain time. Our utility has suspended disconnections for nonpayment through the end of June and urged customers experiencing hardship to reach out. so we can help with payment arrangements. We also remain very focused on affordability of customer bills. We are mindful of the need to operate even more efficiently, given the economy and how it may impact pending rate requests. One bright spot has been fuel costs, which are largely a pass-through item for our customers. Our customers are seeing some benefits of lower fuel prices just when they need it most. For example, on Oahu in May, lower fuel costs would reduce a 500 kilowatt hour per month bill by more than $12 compared to March. We expect lower fuel prices to continue to benefit customers for the next few months, but longer term, we remain concerned about the volatility of oil and its impact on customers, so we're still focused on moving off oil as rapidly as possible. At our bank, we made a huge push with teammates working round-the-clock shifts to secure loans under the Paycheck Protection Program, or PPP, to help small businesses pay employees and other essential bills like utilities. We're proud that American secured over $317 million for approximately 3,600 small businesses employing roughly 40,000 individuals. and that Hawaii banks in total obtained funding for 78% of our state's eligible payrolls in the first round, placing Hawaii in the top five states in the nation. American is also helping customers by providing loan deferral and forbearance options and waiving a number of fees. Like Hawaii, as a company, our fundamentals remain strong. and that serves us well to weather the challenges of COVID-19. On a consolidated basis, we're comprised of stable operating companies in essential industries. Our utility has delivered power for our state for over 125 years through many different economic and social conditions. During this COVID period, we do expect higher bad debt expense and lower kilowatt-hour sales, And indeed, in the last week of March, we saw lower loads, 7% lower on Oahu and Hawaii Island, and 14% lower on Maui. Given the utility's fully decoupled regulatory structure, the primary financial effect relates to liquidity. Although decoupling enables recovery of target revenues approved by the PUC despite lower loads, Cash collections under that mechanism would be delayed until 2021 under the revenue balancing account. We've taken steps to meaningfully strengthen the utility's liquidity position, including through an expanded revolver and a private placement, which priced last week and which included our first green bond offering. The lower loads also impact our Renewable Portfolio Standard, or RPS, performance, albeit in a positive fashion, since the lower kilowatt-hour sales reduces the denominator in the RPS calculation, and we expect to comfortably exceed our 2020 RPS goal of 30%. Our utility and regulators continue to move regulatory processes forward with minimal disruption. The performance-based regulation, or PBR docket, remains on track for final decision by year-end, with workshops proceeding remotely. Our Hawaiian Electric 2020 rate case is also moving forward, although the schedule for an interim decision and order is now October rather than July. As part of that rate case, the PUC implemented a management audit. That's been a constructive process, and the audit report is still expected in May. On April 29th, the PUC published an order terminating the mandatory triennial rate case cycle. As such, we are no longer required to file a Maui electric rate case, and we're evaluating our options there. Our bank has served our state for 95 years and has a conservative risk culture, lending practices, and loan portfolio. These attributes helped ASB perform well compared to other banks during the 2008 2009 financial crisis and position it well for the challenge at hand. While net interest income will decline due to lower rates across the curve and credit losses will rise due to the economic slowdown, the bank remains a good contributor to HEI. ASB independently maintains strong liquidity and capital and regularly conducts stress testing. implemented after the banking crisis of the Great Recession, including under scenarios more severe than what is anticipated from COVID-19. Our bank also has limited exposure to industries such as accommodations, food services, and retail, with a commercial and industrial loan portfolio that is highly focused and secured by real estate. At this point, we do not see a scenario that would require HEI to inject capital into the bank. However, to maintain its target leverage ratio while supporting increased lending under the Paycheck Protection Program, the bank will retain capital it otherwise would have paid in dividends to the holding company. At the holding company, we have enhanced our liquidity to ensure that we can be a source of strength to our subsidiaries in the unlikely event that it is needed, while maintaining our investment-grade capital structure and our shareholder dividend. We have paid uninterrupted dividends since 1901, including during the Great Recession, and maintaining the stability of our dividend is no less important today. We have a strong leadership team with the experience and judgment to guide our companies through this period. I was CEO of HEI through 9-11 and the Great Recession. Rich led a publicly traded Korean bank through that crisis. Our bank CFO led a recapitalization of another bank here in Hawaii, and our utility and executive teams have decades of experience and are well-versed in incident and crisis management. Our board members, with whom we've been very actively engaged in this period, include former utility and bank executives who steered their companies through the financial crisis as CEOs, CFOs, and chief risk officers. Despite our company's strengths and the essential services we provide, we do expect impacts from COVID-19. We saw the beginnings of those in the first quarter, including higher bad debt expense at our utility and higher allowance for credit losses at our banks. With the exception of bad debt, COVID-19-related costs were not significant for the first quarter but may increase in the next few quarters. As a result, the utility has filed a request for deferral treatment of COVID-19-related costs and plans to seek recovery of those costs at a later time. The first quarter was impacted by items other than COVID-19, in particular, higher-than-planned utility O&M expense. Utility O&M expense management has been an area of focus for us, and while we have a number of efforts underway, we do have more work to do. I'll now ask Greg to discuss our first quarter results, our liquidity, and our guidance. Greg?