Hawaiian Electric Industries, Inc.

Good morning and welcome to the Hawaiian Electric Industries, Inc. Third Quarter 2020 Earnings 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 touchstone 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 Smolenski, Director of Investor Relations. Please go ahead.

Thank you, Eileen. Welcome, everyone, to Hawaiian Electric Industries' third quarter 2020 earnings call. Joining me today are Connie Lau, HAI President and CEO, Greg Hazelton, HAI Executive Vice President and CFO, Scott Hsu, Hawaiian Electric President and CEO, Rich Wacker, American Savings Bank President and CEO, and other members of senior management. Our press release and presentation are posted 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. Now Connie will begin with her remarks.

Aloha, everyone, and mahalo for joining us today. We hope you are safe and well. I have been deeply impressed by the dedication of our employees and the resilience of our customers and communities. as we all adapt to the ongoing challenges of COVID-19. Our core strengths continue to serve us well in these unprecedented times. That includes our long history of providing essential services for the state of Hawaii, strong liquidity, stabilizing utility regulatory mechanisms, our bank's conservative approach to risk, its low-risk loan portfolio, and strong capital position. In the third quarter, our financial stability enabled us to continue helping our customers, our economy, and our communities, and again to deliver solid financial results. Net income of $65 million and earnings per share of 59 cents compared to $63.4 million and earnings per share of 58 cents in the same quarter last year. I'll start with an update on the virus and economic conditions in Hawaii before turning to an update on our companies. Then Greg will review our financial results and outlook. While there is still uncertainty regarding the course of the virus and the timing of economic recovery, we've seen some positive signs. First, daily new COVID cases are down significantly from the surge we saw this summer. The seven-day average of new cases is down to 92, with about a 2% positivity rate after a second stay-at-home order on Oahu starting in late August. Oahu's local economy largely reopened in late September under a tiered framework, and since then, we've been able to move to the second tier, allowing more business activity. On October 15th, Hawaii's tourism sector reopened with a program allowing domestic travelers with a negative COVID test to bypass the 14-day quarantine. Since then, we've seen an average of 5,600 arrivals per day, up from the roughly 2,000 a day that we saw before the 15th. Starting today, this program also includes travelers from Japan and Hawaii is working to extend it to other countries. While the tourism reopening is encouraging, the timing of a sustained reopening depends on how the virus plays out. The federal government and military, our second largest economic driver, have maintained stability throughout the COVID period. Residential real estate values have also remained strong. Year-to-date September, O'ahu single-family home prices were up 3.3%, and compared to the month of September last year, O'ahu single-family home prices were up more than 13%, driven by low inventory and low interest rates. The latest forecast from the University of Hawaii Economic Research Organization, or UHERO, whose outlooks have informed our own estimates, projects Hawaii's economic recovery starting in 2021 and accelerating into 2022. Turning to our companies, keeping customer rates down has been a central focus for our utility. That began before the onset of COVID and remains a core priority. Fortunately, customers have seen some bill relief this year. Lower fuel costs and a lower revenue balancing account component from higher than projected electricity sales last year meant that an Oahu residential customer using 500 kilowatt hours of electricity in October paid 13% less than in March. The Commission has extended the suspension of disconnections for nonpayment through year-end. We continue working with customers on repayment options and connecting them with services to help them through this time, including with utility bills. Last month, the Commission approved our settlement with the Consumer Advocate to not increase base rates in our Oahu rate cases. In approving the settlement, the Commission maintained Hawaiian Electric's current allowed return on equity of 9.5% and 58% equity capitalization, lifted the 90% cap on Schofield Generating Station project cost recovery, ended the 2017 rate case customer benefit adjustments, and deemed the enterprise resource planning system benefits commitment to be flowed through to customers as part of the zero base rate increase. To help offset the look of a base rate increase and deliver on our commitment to ramp up to $25 million in customer savings by year-end 2022, our utility is executing on its multi-year efficiency improvement program which began earlier this year. While we pursue cost efficiencies, we're also pressing forward aggressively on our clean energy goals. We're on track to exceed the 2020 RPS milestone of 30% for the year. Since the RPS calculation divides renewable energy by sales, Lower sales due to COVID temporarily pushed our RPS above 35% as of the second quarter. With electricity sales expected to increase in the fourth quarter, we expect RPS to moderate but still exceed 30% by year end. In the next few years, we anticipate strong RPS growth from our major renewable energy and storage procurements. In the third quarter, we filed eight purchase power agreements for renewable energy and storage projects and two self-build storage applications as part of our Stage 2 procurement. Two of the projects selected in that procurement are still under negotiation. Last month, the PUC approved the eighth final PPA from our Stage 1 procurement for a solar plus storage project on Maui. If all Stage 1 projects and the filed Stage 2 projects come online in anticipated timeframes, they would add nearly 600 megawatts of renewable energy and three gigawatt hours of storage to our system between now and the end of 2023. This will help end coal in Hawaii in 2022 with the expiration of one of our Oahu IPP contracts. The Stage 2 projects, together with our recently proposed Kahului Synchronous Condenser project, will also help us retire one of our Maui fossil plants by 2024. We're also preparing an RFP for up to 235 megawatts of community-based renewable energy. Given the scale of our system, these procurements are significant. If you add up what I've just talked about, you get over 800 megawatts. That's on a system with a total peak load of just 1,200 megawatts on Oahu and 200 megawatts each on Hawaii Island and Maui County. While timing for projects to come online can be affected by many factors, there is no question we're moving forward aggressively. As you know, we, the Commission, and many stakeholders have been working hard to align the regulatory framework with customer interests and Hawaii's renewable energy goals through the Performance-Based Regulation, or PBR, docket. The Commission has kept the docket moving through COVID and appears on track for a December decision. The guiding principles set early on in PBR, including maintaining financial integrity of the utility and the collaborative stakeholder-based approach the Commission established, have been consistent throughout the process. We've generally summarized areas of consensus and divergence on slide 30 of our deck. The Commission's decision and order will confirm the way forward. The Commission has been progressing other dockets, too, and just last week approved a 50-year contract for Hawaiian Electric to own, operate, and maintain the electric system serving the Army's 12 installations on Oahu. Turning to our banks, American Savings Bank continues its solid execution in a dynamic COVID-19 environment. These areas are returning to normal operations. We've reopened six branches we had temporarily closed. While low interest rates continue to suppress net interest margin, in the third quarter, we were able to replace much of the prior quarter's sales securities through core activities, including strong mortgage banking income and redemption. We remain focused on sound risk management. With the timing of a sustained tour of the opening uncertain, ASB's third quarter results again reflect elevated provision. We think we're well provisioned and continue proactively working with customers to understand how their financial health and outlook are affected by COVID. Cost efficiency is and will continue to be a focus, particularly in current low interest rate environment. In addition to reducing COVID costs, we've also closed five branches with two more scheduled in December. Most of these had been temporarily closed earlier in the pandemic. We're continuing to roll out our new smart ATMs, providing more customer options and convenience. We've been impressed by how customers have conserved to manage their resources during this time. The majority of customers who sought initial loan deferrals are returning to repayment. While some customers and sectors are more impacted, overall we're seeing low delinquency rates and continued strong deposit growth. For customers who received PPP loans, we're now working on forgiveness and have started submitting loans to the SBA for that process. We've continued to see robust adoption of our online and mobile banking services and high customer satisfaction with our digital offerings. And now Greg will review our results for the quarter and our outlook.