Hawaiian Electric Industries Inc Q4 FY2024 Earnings Call

Hello, and welcome to the Fourth Quarter 2024 Hawaiian Electric Industries, Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Mateo Garcia, Director of Investor Relations. You may begin.

Thank you. Welcome everyone to Hawaiian Electric Industries, Inc.'s fourth quarter and full year 2024 earnings call. Joining me today are Scott Seu, Hawaiian Electric Industries, Inc. President and CEO; Scott DeGhetto, Hawaiian Electric Industries, Inc. Executive Vice President, CFO and Treasurer; Shelee Kimura, Hawaiian Electric 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 Seu will begin with his remarks.

Welcome everyone. Today's call, I'll start with an overview of the important accomplishments we made over the past year and touch on our priorities going forward. I'll then turn it over to Scott DeGhetto, who will discuss the financial implications of recent announcements and walk through our financial results. The past year was pivotal in the history of our company, and I'm proud of what we've been able to accomplish. Since August of 2023, we've told you that our objective is to remain a strong, financially healthy enterprise best positioned to serve the communities in which we operate. This objective has guided us throughout the past eighteen months as we've taken prudent, measured actions to maintain our financial strength in the wake of the Maui wildfires. In November 2024, we came together with other parties to sign final settlement agreements in the Maui wildfire tort litigation. We did so on an expedited basis, significantly enhancing clarity for our company's path ahead. This milestone accomplishment was the culmination of months of negotiations, and once fully approved by the court, the settlement will provide an accelerated path to recovery for those impacted by the fires. Throughout the year, we took numerous actions to bolster our liquidity and ensure Hawaiian Electric Industries, Inc. is in the strongest possible financial position as we work toward finalizing the settlement. We remain deeply committed to advancing wildfire mitigation efforts. Since launching an expanded wildfire safety strategy in the wake of the Maui wildfires, the utility has rapidly advanced efforts to reduce the risk of wildfires. In 2024 alone, the utility invested approximately $120 million to make wildfire safety improvements. These initiatives reflect our ongoing dedication to supporting Hawaii's resilience and safety in the face of increasingly severe weather events. In summary, with our simpler, more focused business model, strong liquidity position, and measures in place to protect against the risk of catastrophic weather events going forward, we believe we're well positioned to continue executing on our priorities.

The successful equity offering we closed in September resulted in $558 million in net proceeds, fully funding our first payment under the settlement. We also strengthened our liquidity by putting in place a $250 million ATM program at the holding company and a $250 million accounts receivable-backed credit facility at the utility. With these collective actions, we ended 2024 in the strongest liquidity position in our company's history. In late December, we completed the strategic review process for American Savings Bank. This transaction was the result of a deliberate and thoughtful process involving numerous potential buyers. After evaluating a range of factors, including transaction certainty, proceeds, regulatory considerations, and potential stakeholder impacts, our board concluded that selling the bank to a group of independent investors was the best step forward. The transaction simplifies Hawaiian Electric Industries, Inc.'s strategy, regulatory position, and allows us to focus on our core utility business. The proceeds will be used to reduce holding company debt, strengthening our balance sheet, and increasing financial flexibility going forward. The utility achieved a 36% renewable portfolio standard in 2024, up from 33% in 2023. This keeps Hawaiian Electric on track to reach an interim goal of 40% RPS by 2030. The average residential bill decreased 7% in 2024. And finally, our utility continues to pursue creation of a wildfire recovery fund and a mechanism to support independent power producer financing of clean energy projects. I'm pleased that we were able to make such substantial strides in 2024 to reduce the risk of wildfires ignited by utility equipment.

Hi. Thanks for taking my question.

Hi, Michael.

Hi. Did the Hawaii Supreme Court issue their ruling that the insurers can't bring their separate legal action against the defendant? Was just wondering if you could talk about your confidence level that the settlement will proceed forward without any more interference from the insurance companies, whether the case might be appealed to the US Supreme Court, or if the insurers try to make other arguments to disrupt it.

Yeah. No. Thanks for the question, Michael. The bottom line upfront, the conclusion of the Hawaii Supreme Court decision was a very positive and major step toward finalizing the settlement agreement. We're really pleased with the outcome. We are awaiting the written order to come from the Supreme Court, which will probably be issued in the coming weeks. We still expect preliminary approval in the second quarter, objection and opt-out deadlines to be in the third quarter, and the approval hearing to be in the fourth quarter of 2025. Of course, the timing of all of this could shift, but the overall outcome is something we're hoping for, and it's just a matter of working through the process now.

Got it. Thanks. And then on CapEx, you highlighted you're going to invest nearly $400 million in wildfire safety over the next few years. I think you said your maintenance capital is about $300 million a year. Just wondered if you could share what your total investment level we should expect over the next few years and what rate-based growth that could drive, and how we should think about your FFO to debt target as you finance the settlement payment.

Hey, Michael. Thanks for the question. So right now, we are currently refining our three-year capital forecast in light of the recently filed wildfire safety strategy. For 2025, we're targeting to be moderately higher than 2024, probably in the $350 to $375 million range. In 2026 and 2027, we have additional opportunities for CapEx. But in aggregate, assuming all goes well, that gives you a general sense of our CapEx plan going forward.

On the FFO side, we're not going to give you a specific target. Other than to say we're going to target investment-grade credit ratings. If we get some sort of bill that resembles what's been introduced in the legislature, it'll be credit positive. If we don't, we'll continue to work with the rating agencies to develop a plan to get to investment grade as best we can.

Hey. Good afternoon, team. Thank you guys very much for the time. I appreciate it.

Thanks, Julien. Hi.

Hey. I wanted to understand how you guys are thinking about framing the wildfire legislation to build stakeholder support. Can you speak to a little bit about your successes thus far on that front? I'll note that the state senator who previously prevented this bill from coming out of a committee has sponsored the new iteration. I find that notable.

There has been a lot of positive momentum, especially when we compare against where we were last year. So where we are today is in a much more positive stance. We're having to debate. I think it was very positive when you read the introductions to those bills in terms of the recognition of why establishing something like a wildfire recovery fund is good policy and will provide benefits for customers, for the company, and the state of Hawaii.

I think the agencies want to see some sort of backstop fund among other things. If we get it, it's credit positive. If we don't, we'll just continue to work with the rating agencies and develop a plan to get to investment grade as best we can.

Thanks, Julien. To everybody for calling in today. In closing, 2024 was a year of significant achievements in the face of unprecedented challenges facing our company. I really feel that we've made rapid progress towards rebuilding the financial strength of our enterprise. With the recent favorable Supreme Court decision, we're well positioned to navigate the path ahead. Thank you for your continued investment in Hawaiian Electric Industries, Inc.

This concludes today's conference call. Thank you for joining. You may now disconnect.