Hawaiian Electric Industries, Inc.

Good day and welcome to the Hawaiian Electric Industries second quarter 2021 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 telephone keypad. 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, Vice President of Investor Relations and Corporate Sustainability. Please go ahead.

Thank you, Andrea. Welcome, everyone, to Hawaiian Electric Industries' second quarter 2021 earnings call. Joining me today are Connie Mao, HAI President and CEO, Greg Hazelton, HAI Executive Vice President and CFO, Scott Hsu, Hawaiian Electric President and CEO, Ann Teranishi, 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, and aloha, everyone. Mahalo. Thank you for joining us today. Second quarter consolidated financial results were strong as Hawaii's economy improved and as we advanced key priorities across our enterprise. Our consolidated net income per quarter was $63.9 million with EPS of 58 cents, 31% and 29% respectively above the same quarter last year. This followed a great first quarter, and for the first half of the year, our consolidated net income and EPS were up 56% compared to the first half of 2020. At the utility, our year-to-date results have benefited from our focus on cost management and efficiency, and from timing items expected to reverse in the balance of the year. We expect the utility to remain within its full-year guidance range announced in February. The improved Hawaii economy and strengthened credit quality of our bank loan portfolio were key drivers of our results year to date, and in the second quarter enabled the bank to release a portion of its reserves for credit losses, resulting in a negative provision for the quarter. We are again increasing our full-year bank and consolidated guidance, which Greg will cover shortly. We've seen strengthening in Hawaii's economy with the reopening of our local economy and rebound of tourism. However, we are closely monitoring the recent increase in cases due to the Delta variant, as well as how our community responds. More than 60% of Hawaii residents are now fully vaccinated, and we expect that that will increase as more employers, including state and county government, are requiring employees to be vaccinated or subject to frequent testing. Controlling virus levels will enable Hawaii to continue to be an attractive tourism destination, and that will help us keep our economy open. Daily visitor arrivals have increased strongly over the last couple of months, approaching and sometimes exceeding pre-pandemic levels. with most of our arrivals continuing to be from the U.S. mainland. In June, arrivals from the U.S. West region were approximately 15% above June 2019, and their spending was 33% higher. Unemployment declined to 7.7% in June, the fifth month of improvement. Hawaii real estate values and activity remain robust, For July, median prices of O'ahu single-family homes were up 22%, and sales volume was up 12% over last year. For condos, prices were up 8%, and sales were up 58%. As of the May forecast, UHERO, the University of Hawaii Economic Research Organization, expected state GDP to increase 4% in 2021, and 3.1% in 2022. While we've seen great progress on the economy, we're still taking a cautiously optimistic approach, particularly with uncertainty due to the Delta variant. At the utility, we remain focused on cost efficiencies as we make needed investments to continue to provide affordable, resilient, and reliable electricity to reach Hawaii's climate goals. The new performance-based regulation, or PBR, framework is now fully in effect as of June 1, and we've begun returning cost savings to our customers under the Management Audit Savings Commitment and Customer Dividend component of the ARA, or Annual Revenue Adjustment Mechanism. As we've discussed in the past, Performance incentive mechanisms, or PIMs, are an important part of the PBR framework. In May, the Hawaii Public Utilities Commission approved the final details of a suite of PBR PIMs, which are now in effect. The Commission has now started a process to consider and develop additional performance incentives. This includes PIMs and shared savings mechanisms relating to grid reliability, retirement of fossil fuel generation, interconnection of large renewable energy projects, and cost control for fuel, purchased power, and other non-ARA costs. We don't yet know when an additional performance mechanisms would come into effect or what the potential earnings impact could be. However, we always expected PBR would be a process of continued refinement, and we look forward to collaborating with stakeholders to develop new ways to align incentives with customer interests. As we've always said, reaching our collective clean energy and decarbonization goals must be done in a way that is equitable and involves everyone working together. A lot of the progress we're seeing now across utility scale and distributed renewable energy additions, grid modernization, and electrification of transportation are good examples of this. The Powering Past Coal Task Force convened by our Governor Ige has brought together a range of stakeholders to ensure Commission-approved projects on Oahu are successfully brought online as we prepare for retirement of Hawaii's only coal plant. We're pressing forward on Stage 1 and 2 renewable procurement projects with independent power producers. Three Stage 1 projects are now under construction, with others slated to start construction this year or early next year. Six of 12 Stage 2 projects now have approved PPAs, and the remaining six Stage 2 projects are pending approval. Last quarter, we sought clarification from the Commission regarding the interconnection docket and the Kapolei Energy Storage Battery Energy Storage Project. We appreciated the Commission's work to respond quickly in both matters. In the interconnection docket, the Commission clarified its intent for us to track costs to customers resulting from changes in project schedules rather than record such costs. and the Commission revised the conditions to its approval of the Kapolei storage project, enabling us to now work with the developer to advance that project. We're working to accelerate the addition of more distributed energy resources and are advancing programs to benefit all customers. As of this June, we surpassed 90,000 cumulative installed customer-sighted solar systems. which comprise most of the nearly 1 gigawatt of solar capacity on our grid. And now, the battery bonus program launched last month incentivizes customers to add storage and benefit the overall system by allowing the utility to use energy from those systems in the evening hours. Grid modernization is also progressing well, with advanced meter deployment accelerating with the Commission's approval to shift from an opt-in to an opt-out approach, enabling greater operational efficiencies and more customer options. Finally, we're encouraged by recent developments that will accelerate electrification of transportation here in Hawaii and across the country. In June, the Commission approved our eBus Make Ready Infrastructure Pilot Project, which is projected to provide savings for bus fleet operators while decreasing GHG emissions. Governor Ige signed into law bills to replace the state's light-duty vehicles with a zero-emission fleet by 2035, consistent with our utility's own fleet electrification goal, and to allocate 3% of oil barrel tax revenues to finance construction of EV charging stations. President Biden's recently announced goal of 50% of vehicle sales being electric by 2030 will also help accelerate our electrification efforts, which will benefit our customers, our environment, and our clean energy transition. Turning to the bank, ASB's strong results reflected the credit-driven reserve release and resulting negative provision for credit losses as the economy and credit quality improved. We believe our reserve levels are appropriate, taking into account ongoing pandemic uncertainty. The bank's margin improved compared to the first quarter, benefiting from fees related to ASB CARES or Payment Protection Program PPP loans, lower amortization of investment premiums, and a continued record low cost of funds of seven basis points. We're still seeing margin pressures due to low asset yields, and excess liquidity as strong deposit growth continues to outpace lending opportunities at present. Even so, earning asset growth is helping us grow net interest income consistent with our expectations, and we're starting to see more in the loan pipeline. with an uptick in home equity lines of credit, as well as continued strength in residential mortgages and commercial real estate. As ASB's digital banking transformation continues, we're focused on strategic investments to keep the franchise strong and competitive, expand service levels, and continue to deliver the personal touch that is a hallmark of who we are as a bank. Anne and the bank team are upgrading the bank's technology, data analytics, and operating model to allow our team members to transition away from processing tasks and focus more on customer relationships and satisfaction. We're getting great feedback from bank customers on our digital offerings so far. Nearly 50% of consumer deposits are now through our upgraded ATM fleet, or mobile platform, and customer satisfaction remains high. We've opened three digital centers to date, with a fourth opening today, and are excited to see how this new concept, which merges our digital platforms with our warm in-person presence, performs in the coming months. And now, Greg will discuss our financial results and our Outlook.