Hawaiian Electric Industries, Inc.

Good day, and welcome to the Hawaiian Electric Industries fourth quarter 2020 earnings conference call. All participants will be in a 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 and then one on a touchtone phone. To withdraw your question, please press star and then two. Please note, this event is being recorded. I would now like to turn the conference over to Julie Smolenski, Vice President of Investor Relations and Corporate Sustainability. Please go ahead.

Thank you, Tom. Welcome, everyone, to Hawaiian Electric Industries' fourth quarter and full year 2020 earnings call. Joining me today are Connie Lau, HEI President and CEO, Greg Hazelton, HEI 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.

Thank you, Julie. Aloha, everyone, and mahalo. Thank you for joining us today. In 2020, we achieved consolidated net income of $197.8 million and earnings per share of $1.81. While down from 2019, our consolidated 2020 earnings include strong utility results driven by good regulatory mechanisms and the utility's focus on cost savings. while the bank performed well given pandemic-driven economic challenges. Last week, our board approved our third consecutive annual dividend, raising the quarterly dividend per share from 33 cents to 34 cents. This reflects our continued financial performance and our confidence in our future prospects. I'm proud of the commitment of our employees as we work to support our customers through the challenges of 2020. protect fellow employees, and care for our community, all while continuing to deliver solid, consolidated financial results and advance long-term priorities. We have viewed our mission to be a source of strength to help our state weather the challenges of COVID. This has included extensive actions across our company, including at our utility, suspending disconnections, providing payment options to help customers manage their bills, and proposing to hold base rates flat on Oahu to help keep rates down. In addition, based on the utility's strong financial results, at year-end, HEI provided $2 million for Hawaiian Electric to be the founding sponsor of the Aloha United Way Hawaii Utility Bill Assistance Program to help families on all islands pay utility bills. Similarly, our bank offered loan deferrals, temporarily suspended fees, and deployed $370 million in Paycheck Protection Program funding to support approximately 4,100 small businesses representing about 40,000 local jobs. 2020 was a record year for our charitable giving. including the Utility Bill Assistance Fund I just mentioned, our companies and employees together made charitable commitments of $5.5 million, more than double our typical level. These actions reflect who we are as a company and our longstanding ESG focus. In 2020, we issued our first consolidated ESG report, which is aligned with GASB guidance. Despite the challenges presented by COVID, we remained focused on our strategic priorities, including at Hawaiian Electric, and those are to deliver a cost-effective clean energy portfolio, improve customer experience and offer innovative energy solutions, create a modern grid and technology platform, strengthen stakeholder relationships, work with stakeholders to align regulatory and market models, improve our company culture, and ensure that we have the financial strength to deliver on our state's ambitious energy goals. A few highlights. We outperformed our 2020 renewable energy portfolio milestone of 30%, with 34.5% RPS for the year. While lower demand due to the pandemic contributed to that result, If electricity use had been the same as 2019, we would still have exceeded the milestone at 32%. The RPSA PIM established in the performance-based rate-making docket incentivizes us to continue to focus on exceeding the statutory milestones, and we'll talk about that in a moment. We continue to aggressively advance renewable energy and storage procurement. filing nine Stage 2 RFP purchase power agreements. Three of those have now been approved by the PUC. We also filed applications for our two self-built storage projects and continue moving Stage 1 RFP projects forward. Together, Stage 1 and 2 projects, if completed as planned, are expected to add about 650 megawatts of solar and about three gigawatt hours of storage to our system by the end of 2023. Limited land, especially on Oahu, means that in addition to utility-scale projects, distributed energy resources, community-based projects, and grid services are critical to achieving our goals. Twenty percent of all residential customers and 36 percent of single-family homes on Oahu have rooftop solar, by far the leading rooftop solar uptake per capita in the nation. The pace of new rooftop solar additions also picked up in 2020, with 55% more installed in 2020 than in the prior year. Importantly, 78% of new rooftop solar applications also have battery storage. This allows daytime excess solar production to be used to reduce fossil-based power at night. We've launched our new Quick Connect program to enable customers to interconnect their rooftop solar faster, and we will soon launch our Shared Solar program, a new phase of community-based renewable energy to extend the benefits of clean energy to a wider range of residents, with priority to those who have been underrepresented in solar adoption such as renters and customers with low to moderate incomes. All of these clean energy efforts are contributing to our state's economic recovery and creating local jobs. We continue to work together with our communities and stakeholders to find the best ways to achieve a clean energy future that's affordable, resilient, and reliable. Stakeholder engagement has been central to our integrated grid planning process, which is developing long-range plans to inform investment priorities for resilience, grid, and generation resources. Our utility focused heavily on cost savings in 2020. Building on our one-company initiative, in 2020, we outlined a three-year program to reduce costs and increase efficiency, beginning well before the May management audit report that was part of our 2020 rate case. In 2020, we achieved significant savings, including $7 million in O&M savings through better planning, coordination, and execution of work, targeted staffing reduction, and continued efforts in strategic sourcing. We also achieved the savings we committed to deliver to customers in connection with our Enterprise Resource Planning System, ERP. Our cost management focus enabled us to adjust to the flat base rates we proposed for our Oahu rate case and positions the utility well to deliver on its management audit savings commitment, customer dividend, and operate under PBR. Our utilities achievements in 2020 support our 2021 to 2025 strategic plan priorities which include advancing decarbonization and resilience, both in our electric system and more broadly in our state, driving a sustainable and equitable local economy, strengthening our company culture, and demonstrating our commitment to safety and the highest level of performance in all that we do, engaging with our communities to develop solutions that are sustainable, reliable, and affordable, and ensuring we have the financial strength to invest in this decarbonized and sustainable future for our companies and our communities. In December, the PUC issued its phase two decision establishing the landmark PBR framework, capping a two and a half year process that included extensive involvement by the utility and stakeholders. Overall, we view the new framework as providing a balanced approach designed to provide value for customers and opportunities for the utility as we continue one of the nation's most ambitious energy transformations. The PBR framework is designed to balance a number of important interests, including those the PUC identified in its phase one PBR decision last year. For example, PBR promotes cost control and affordability through the inflationary adjustment and customer dividend components of the annual revenue adjustment or ARA mechanism. Advances customer equity through incentives to collaborate on low to moderate income or LMI energy efficiency initiatives. Encourages innovation through a new pilot project process. incentivizes accelerated renewable energy additions through the RPSA performance incentive mechanism, or PIM, and supports utility financial integrity by eliminating elements of structural regulatory lag, establishing new revenue opportunities through PIM, the new pilot process, and the ability to earn on O&M-based as well as capital-based projects through the new EPRM mechanism, providing safeguards against extreme results. From an ESG standpoint, we view the PBR framework as providing a greater connection between our achievement of environmental and social goals and our financial performance. As Greg will discuss further, 2021 is a transition year for the utility. Our 2021 guidance and implied ROE reflect moderated assumptions for earnings in ROE with the initial implementation of PBR mid-year this year. Moving into 2022, we see strengthening financial opportunities for our company. Among the key drivers of this 2021 transition are, first, most PBR elements, including the annual revenue adjustment, become effective June 1. So, we'll see the full effect of PBR for the first time in 2022. For example, the RAM lag we've had will remain in 2021, but will be eliminated in 2022 and going forward. Second, while we anticipate modest renewable energy additions in 2021, We expect that to pick up in 2022 and 2023 with more Stage 1 and Stage 2 RFP projects, which, if completed as planned, will contribute to rewards under the new RPSA PIM. Third, with accelerated delivery of our management audit savings commitment to customers in 2021, we're adjusting to a higher level of cost containment this year than originally planned. Finally, with our 2020 rate case settlement, a portion of 2019 and 2020 capital investment is not yet covered in rates, and we'll be working to address that. We see increased opportunities for the company in 2022 and beyond as we work through these transition items and gain experience with new PBR mechanisms. Turning to the bank, American performed very well in a challenging banking environment. While its earnings were impacted by low interest rates and higher provision in light of COVID-driven economic uncertainty, the bank delivered solid profitability. American had record mortgage production, gaining market share, and new customer relationships. The bank also worked to control costs to offset increased expenses related to COVID while still investing in core priorities. Throughout the pandemic, the bank has focused on delivering for its customers, including through deferrals, fee waivers, and PPP funding. American is now working on round two of PPP with new technology in place to streamline the process for both customers and the bank. American worked hard for other stakeholders as well, enabling a successful program to deploy CARES Act funds to help both unemployed families and our restaurant industry during the pandemic, and continuing to support its teammates with an excellent workplace culture. As we look ahead, we expect low interest rates to continue to pressure margins for the bank, although a steepening of the curve could provide some tailwinds. In low interest rate environments, cost management becomes all the more important, and that will be a central focus for us. At the same time, we will be investing in key areas to advance our anytime, anywhere digital banking transformation. We continue to manage credit conservatively. While we're optimistic about the economy, there's still some near-term uncertainty, particularly in the first half of the year. so we have maintained our strong provisioning to date. That said, our loan portfolio remains strong with low net charge-offs and delinquencies. The pandemic has altered customer behavior and expectations in profound ways. We've seen a dramatic acceleration of customers migrating to our digital and self-service options. Non-branch transactions, such as online and ATM transactions, have increased from 19% prior to COVID to 40% in December, and we've been pleased to see very high levels of customer satisfaction with those options. We want to continue our focus on making banking easy, be available to customers anytime, anywhere, and encourage them to make American their primary bank. We've rolled out new ATMs with increased capabilities, launched more online tools, including for mortgage applications and online deposit account opening. With increased customer use of our digital channels, we've been able to consolidate eight branches and are introducing digital centers this spring. These locations will leverage our digital capabilities while still providing in-person interaction. This refocusing of our branch network will provide savings over time. As we enhance our digital offerings, deepening our relationships with our customers remains a cornerstone of our strategy. We'll also soon be launching additional online financial wellness tools for customers, empowering them with greater financial knowledge and providing increasing avenues to engage with and offer services to them. And now... Greg will provide an update on the economy, our financial results, and our outlook. Greg?