Hawaiian Electric Industries, Inc.

Good day and welcome to the Hawaiian Electric Industries fourth quarter 2023 earnings conference call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. I will now turn the call over to Mateo Garcia, Director of Investor Relations. You may begin your conference.

Thank you. Welcome, everyone, to HEI's fourth quarter and full year 2023 earnings call. Joining me today are Scott Siu, HEI President and CEO, Scott DeGhetto, HEI Executive Vice President, CFO and Treasurer, Shelly Kimura, Hawaiian Electric President and CEO, and Tara Nishi, American Savings Bank President and CEO, and other members of senior management. Our earnings release and our presentation for this call are available 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. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. Now Scott Siu will begin with his remarks.

Aloha kākou. Welcome everyone. For today's call, I'll start with key updates regarding the Maui wildfires, followed by financial and operational updates, And then we'll walk you through our 2023 financial results in more detail before we open it up for questions. It's been just over six months since the tragedy of the August 8th wildfires. Our community continues to grieve, and we know that it will be a long road ahead. However, I'm encouraged and inspired by the way so many in our community have come together to work towards the near and long-term solutions necessary to help our state heal and emerge stronger. It's clear that supporting Maui's recovery and addressing the increasing risk of wildfires as our climate changes will take a whole of society approach. We're seeing this whole of society view reflected in the One Ohana initiative Governor Josh Green announced last fall and in our state's legislative session that is now underway. One Ohana lays out a holistic framework to support Maui's recovery, protect our communities against future extreme weather events, and ensure that as a state we can attract the capital needed to invest in wildfire mitigation and keep our communities safe. Governor Green has also stated his intention for our state to avoid protracted legal conflicts, which could not only jeopardize Hawaii's energy future, but could also severely delay reconstruction and economic recovery. The intentions of One Ohana align with our company's values and priorities. Under One Ohana, many parties are working together to find solutions to help the families most impacted by the fires, reduce the risk of catastrophic wildfires, and provide economic stabilization for the state. Meaningful progress has been made towards these goals in just the three months since One Ohana was announced. The Maui Recovery Fund, one aspect of the Governor's One Ohana initiative, provides an alternative to litigation for families who have lost a loved one and those who were severely injured in the Maui fires. It now has $175 million of commitments and is targeting a March 1st launch. Hawaiian Electric will contribute up to $75 million, and the State of Hawaii, Maui County, Kamehameha Schools, Spectrum, and Hawaiian Telecom have committed to contribute the remainder. The speed at which this first fund has come together is encouraging, and as the governor has said, it will help with healing and help everyone move forward. The next phase of this process will seek to support property owners and businesses who have been severely impacted by the fire. As part of the One Ohana framework, Governor Green also laid out intentions to explore legislative solutions to address not only Maui's recovery, but also measures for our state to address the impacts of increasingly severe weather events going forward. The legislative session began last month, and in the range of bills that have been introduced, we're seeing a whole-of-society approach to ensuring our state, utilities, and communities have the tools needed to address the challenges we face. were focused on bills that would establish a fund for property owners to recover damages from future catastrophic wildfires, wildfire risk mitigation planning requirements overseen by the Public Utilities Commission, along with cost recovery for implementing approved plans, and securitization as a financing option. The Office of the Governor has expressed the importance of legislation that can help stabilize the electric utility and Hawaii's energy future. His administration has proposed a bill that requires the utility to develop a wildfire mitigation plan overseen by the Public Utilities Commission and also includes securitization as a tool to finance wildfire safety and recovery. Dozens of bills have been introduced to address other aspects of wildfire risk more broadly. The legislature is considering bills that would establish a state fire marshal, a state wildfire fuel reduction task force, a wildfire safety advisory board, and a state firefighting helicopter program, to name a few examples. It's still early in the legislative process, and bills can undergo significant changes over the legislative session, which will run through early May. However, I'm pleased to see commitment among so many in Hawaii to urgently address the risks wildfires and other extreme weather events pose to our state. We also continue to work through the litigation process. As of February 12, Hawaiian Electric Company has been named as a defendant in 101 lawsuits by plaintiffs claiming losses related to the August 8 windstorm and wildfires, and HEI has been named in 101 as well. Most of these lawsuits have been removed from the state court to federal court, but jurisdiction is still in the process of being settled. Certain milestone dates that were set earlier by the state court, such as when we'll need to file counterclaims, are no longer in effect and will be revisited once jurisdiction is settled. Subrogation claims from about 150 different insurers with exposure on Maui have also been filed and we'll respond to those complaints once they are served on us. Turning to the next slide, our utility received several constructive regulatory decisions in recent months that support our efforts to strengthen the resiliency of our system while we continue to advance Hawaii's clean energy goals. Earlier this month, Hawaiian Electric received PUC approval for their five-year, $190 million grid resilience plan. The plan includes a slate of foundational resilience investments as the first phase of a long-term climate adaptation effort that will help harden the utility's grids against severe weather-related events fueled by climate change. This approval enables the utility to move forward with $95 million in Department of Energy Infrastructure Investment and Jobs Act funding by matching it with $95 million in rate recovery. The utility also received several important regulatory decisions prior to 2023 year end, including approvals to defer costs associated with the Maui wildfires and to recover $8.8 million in previously deferred costs from the COVID-19 pandemic. Our approximately $82 million YNA battery energy storage project on Maui was also approved. This is a critical project for ensuring adequacy of supply on the island. The utility has continued to progress its Stage 3 RFP, its largest renewables procurement ever. Contract negotiations are in process with the developers of 16 renewable energy projects across our islands. The projects will further reduce Hawaii's dependence on imported oil for power generation. The negotiations are expected to produce long-term contracts for approximately 517 megawatts of variable generation 694 megawatts of firm renewable generation, and 2.1 gigawatt hours of storage. As we've discussed previously, the utility's own 253 megawatt Wai'au repowering project on O'ahu was selected in the RFP. The project will be built at the site of Hawaiian Electric's existing 85-year-old facility and could potentially use renewable gas or hydrogen when it becomes commercially available. The utility is working closely with the Department of Energy on federal loan funding options to help fund the project. We're also pursuing additional federal funding sources, including nearly $450 million of grants for grid resilience, modernization, and innovation for investments to increase resilience to natural hazards, including wildfires. In December, The utility connected the world's most advanced battery energy storage system to Oahu's grid. The Kapolei Energy Storage Battery Plant provides 185 megawatts of total power capacity and 565 megawatt hours of energy, and this is the first time a standalone battery has provided grid-forming services at this scale. We're pleased with the utility's continued progress towards a clean energy-powered grid, and encouraged by the constructive regulatory and federal government engagement on Hawaii's clean energy future. I'm also pleased to announce that we recently reached agreement with our union, IBEW 1260, on a new three-year contract effective through October 2027. The contract provides stability and visibility as we continue performing critical work to modernize our generation system and make our electric grids more resilient. Turning now to our financial results. Our core operations have continued to perform in line with expectations while we work alongside others in the Maui reconstruction efforts. On a consolidated basis, 2023 net income was $199.2 million and earnings per share was $1.81. This included about $14 million of Maui wildfire related expenses, net of insurance recoveries and deferrals, and a loss in the sale of securities of $11 million, resulting from a strategic balance sheet repositioning at the bank. Excluding these items, core net income was $224 million and EPS was $2.04, down about 5% compared to last year's core net income. which excludes the gain on sale of an equity method investment recorded in 2022 at Pacific Current. Utility net income and EPS were $194 million and $1.76 or $195.1 million and $1.77 on a core basis, up about 3% compared to 2022. bank net income and EPS were $53.4 million and 48 cents. Excluding wildfire related expenses and the securities loss, core net income was $72.6 million and EPS was 66 cents, down from $80 million and 73 cents last year. At the holding company level, the net loss of $48.1 million in 2023 was up from $27.8 million in the prior year and included $4.7 million of wildfire related expenses. Excluding these expenses, core net loss was $43.4 million and core EPS loss was 39 cents. Turning to the bank, ASB's business proved resilient through the economic impacts of the Maui wildfires and the challenging interest rate environment experienced in 2023. ASB's loyal and long-tenured deposit base remained stable during the year, and as of December 31, 86% of deposits were FDIC-insured or fully collateralized. Customer deposits are safe. and there is no risk to customer deposits as a result of legal claims related to the wildfires. Asset quality remains strong and the Hawaii market continues to be characterized by strong credit quality and low delinquency rates in comparison to the mainland. The bank's capital remains strong with ample liquidity and lending capacity. The sale of investment securities executed in the fourth quarter positions ASB for improved profitability and net interest margin while strengthening the balance sheet. In the fourth quarter, the bank sold low-yielding securities and reduced high-cost deposits with proceeds. Scott DeGetto will discuss the transaction in greater detail. ASB has continued to support the Maui community at a time when they most need us, and the Bank has provided numerous options for our Maui customers facing financial hardship as a result of the fires, including waived ATM fees, forbearance and deferment for commercial and consumer loans, and emergency personal lines of credit. In addition, the Bank has provided $135,000 of charitable contributions to support the Maui community. and has partnered with the Hawaii Restaurant Association, the Hawaii Bankers Association, and others to provide donations and other resources for Maui residents during this difficult time. We are optimistic regarding Hawaii's economic outlook, and the economy has proved resilient following the wildfires in August. Hawaii's statewide seasonally adjusted unemployment rate was 2.9% in December, and continues to outperform the U.S. average of 3.7%. The University of Hawaii Economic Research Organization, or UHERO, forecasts that the state unemployment rate will remain low at 2.5% in 2024. UHERO's latest outlook is an improvement compared to their outlook immediately following the wildfires. UHERO had initially predicted a more prolonged recovery, estimating that Maui's visitor arrivals would be 50% of the previous years, and Maui unemployment would be over 10%. Maui's unemployment rate was around 5% as of year end, and in the month of December, visitor arrivals to Maui were 75% of the previous years. Total statewide arrivals for the year were 90% of pre-pandemic levels. Despite the economic impacts from the Maui wildfires, statewide visitor spending for the full year was up over 2022. Visitor spending increased 5.5% to $20.8 billion in 2023. This is well above pre-pandemic levels by almost 20%, despite Japanese visitor arrivals being at about half of pre-pandemic levels. Real estate values in Hawaii remain consistently strong. In December, the O'ahu median single-family home price was over $1 million, and the median condo sales price was just under $510,000. Home sales volumes were down year over year, but we're encouraged to see the recent decline in mortgage rates. Hawaii's market continues to be characterized by limited inventory and stable prices. supported by limited land available for property development. I'll now hand it off to Scott Dighetto to walk through our financial results in more detail.