Hawaiian Electric Industries Earnings Call Insights: RAMs and Structural Lag

Hawaiian Electric Industries (NYSE:HE) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

RAMs

Charles Fishman – Morningstar: On the RAMs, at this point, going forward then they will always be filed in March and effective in June as part of that settlement, is that all three?

Constance H. Lau – President and CEO: For Oahu, the RAMs are always filed in March and effective June 1.

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Charles Fishman – Morningstar: Okay. I thought something had changed with the settlement, but it appears not. And then on the HELCO – I’m sorry, go ahead.

Constance H. Lau – President and CEO: Could you hold on just one sec? Charles, I’m sorry, we were debating what question you had actually asked and let me just state what it is. So the filings are always done March 1, effective June 1 – I’m sorry, March 31. Going forward, in 2014 through 2016 for the Oahu utility for that particular cycle, it will be effective January 1.

Charles Fishman – Morningstar: That was the one that changed with this settlement, correct?

Constance H. Lau – President and CEO: Yeah, that’s correct. So that is now effective January 1, although still the cash collection begins on June 1.

Charles Fishman – Morningstar: Then on the statement that HELCO will – ROE will likely underperform the rest of this year and next year. But do you see improvement over the 6.3% just because of the reduction in O&M et cetera?

Constance H. Lau – President and CEO: I’ll let Dick answer that…

Richard M. Rosenblum – President and CEO, Hawaiian Electric Company, Inc.: Let me explain what’s going on. Because we canceled the HELCO rate case there are some expenses at HELCO which we need to fund and an example for instance is tree trimming. So, what we’re doing is we’re managing our O&M on a consolidated basis, which means we shift some from the other utilities to HELCO to fund the tree trimming that will result in the isolated results for HELCO, looking worse, but the integrated results being as we predict. Does that make sense?

Charles Fishman – Morningstar: And it will be less than 9.6% that you realized last year in the core ROE than is what you’re saying?

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Richard M. Rosenblum – President and CEO, Hawaiian Electric Company, Inc.: Correct.

Charles Fishman – Morningstar: Now the Island interconnect, if that was to go forward that would be the kind of event that would trigger more an additional need for equity in 2015. Am I thinking about that correctly?

Constance H. Lau – President and CEO: It’s unlikely. If it did go forward that it would go forward that quickly.

Charles Fishman – Morningstar: Okay. So, that’s out there and something we don’t have to think about with this recent equity.

Constance H. Lau – President and CEO: Absolutely, that’s correct.

Structural Lag

David Paz – Wolfe Trahan: Regarding the structural lag, can you just – what makes up the 80 to 110 basis points that you expect in 2014 through ’16?

Tayne S. Y. Sekimura – SVP and CFO, Hawaiian Electric Company, Inc.: David, this is Tayne Sekimura. The structural lag consists of mainly four items. One relates to the general rate case lag. The second would be the RAM five month delay. The is for HELCO and MECO where the RAM accelerations were not part of the settlement agreement. The third item would be the RAM baseline additions because it’s based in a five-year historical average to the extent that actual baseline additions are higher due to that lag. And then the fourth item relates to non-recoverable expenses and these include things like incentive compensation and advertising. Our guidance is between 80 and 110 basis points and that can vary depending on the size of our rate cases as well as how big the baseline plant additions are. That’s an improvement over our previous guidance we said about 120 to 150 basis points and that’s because of the RAM acceleration on Oahu, improved consolidated ROE by 40 basis points. Does that help?

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Charles Fishman – Morningstar: On the RAMs, at this point, going forward then they will always be filed in March and effective in June as part of that settlement, is that all three?

Constance H. Lau – President and CEO: For Oahu, the RAMs are always filed in March and effective June 1.

Charles Fishman – Morningstar: Okay. I thought something had changed with the settlement, but it appears not. And then on the HELCO – I’m sorry, go ahead.

Constance H. Lau – President and CEO: Could you hold on just one sec? Charles, I’m sorry, we were debating what question you had actually asked and let me just state what it is. So the filings are always done March 1, effective June 1 – I’m sorry, March 31. Going forward, in 2014 through 2016 for the Oahu utility for that particular cycle, it will be effective January 1.

Charles Fishman – Morningstar: That was the one that changed with this settlement, correct?

Constance H. Lau – President and CEO: Yeah, that’s correct. So that is now effective January 1, although still the cash collection begins on June 1.

Charles Fishman – Morningstar: Then on the statement that HELCO will – ROE will likely underperform the rest of this year and next year. But do you see improvement over the 6.3% just because of the reduction in O&M et cetera?

Constance H. Lau – President and CEO: I’ll let Dick answer that.

Richard M. Rosenblum – President and CEO, Hawaiian Electric Company, Inc.: Let me explain what’s going on. Because we canceled the HELCO rate case there are some expenses at HELCO which we need to fund and an example for instance is tree trimming. So, what we’re doing is we’re managing our O&M on a consolidated basis, which means we shift some from the other utilities to HELCO to fund the tree trimming that will result in the isolated results for HELCO, looking worse, but the integrated results being as we predict. Does that make sense?

Charles Fishman – Morningstar: And it will be less than 9.6% that you realized last year in the core ROE than is what you’re saying?

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Richard M. Rosenblum – President and CEO, Hawaiian Electric Company, Inc.: Correct.

Charles Fishman – Morningstar: Now the Island interconnect, if that was to go forward that would be the kind of event that would trigger more an additional need for equity in 2015. Am I thinking about that correctly?

Constance H. Lau – President and CEO: It’s unlikely. If it did go forward that it would go forward that quickly.

Charles Fishman – Morningstar: Okay. So, that’s out there and something we don’t have to think about with this recent equity.

Constance H. Lau – President and CEO: Absolutely, that’s correct.