Hawaiian Electric Industries (HE -0.61%)
Q2 2022 Earnings Call
Aug 08, 2022, 4:15 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon. Thank you for attending in the present day’s Q2 2022 Hawaiian Electric Industries, Inc. earnings convention name. My identify is Tamiya, and I might be your moderator for in the present day.
[Operator instructions] It is now my pleasure to move the convention over to our host, Julie Smolinski, vice chairman, investor relations and company sustainability. Please proceed.
Julie Smolinski — Vice President of Investor Relations and Corporate Sustainability
Thank you, Tamiya. Welcome, everybody, to HEI’s second quarter 2022 earnings name. Joining me in the present day are Scott Seu, HEI president and CEO; Paul Ito, Interim HEI CFO; Shelee Kimura, Hawaiian Electric president and CEO; Ann Teranishi, American Savings financial institution president and CEO; and different members of senior administration. Our press launch and our presentation for this name can be found within the investor relations part of our web site.
As a reminder, forward-looking statements might be made on in the present day’s name. Factors that would trigger precise outcomes to vary materially from expectations may be present in our presentation, our SEC filings and within the investor relations part of our web site. Now, Scott will start along with his remarks.
Scott Seu — President and Chief Executive Officer, HEI
[Foreign language] Greetings, everybody. Thank you for becoming a member of us in the present day. We’re happy with our consolidated second quarter earnings of $52.5 million and earnings per share of $0.48. Our earnings replicate strong outcomes on the utility which continues to carry out nicely beneath the performance-based regulation framework.
While we have continued to see the upper O&M bills we talked about on final quarter’s name and which we’ll focus on additional shortly. We count on to stay inside our utility steering vary for the 12 months, albeit throughout the decrease half of the vary. The financial institution had a great quarter as nicely, benefiting from robust mortgage development and the upper price setting. With the financial institution’s mortgage development, the quarter additionally noticed a return to a extra normalized provision expense following 5 consecutive quarters of unfavorable provision.
While this diminished the financial institution’s outcomes versus the prior 12 months and linked quarters. This was in step with dynamics anticipated for this 12 months. Overall, we’re reaffirming our consolidated steering vary for the 12 months. Taking a better have a look at latest utility developments.
Together with authorities companies, regulators, builders and different stakeholders, we’re making nice strides in our clear vitality transition. We’re approaching a serious milestone, the tip of coal in Hawaii, a key motion in our local weather change motion plan. The retirement of the state’s final coal plant is on observe for September 1. The state’s largest solar-plus-storage venture got here on-line July 31.
Two extra photo voltaic plus storage tasks are slated to come back on-line within the subsequent few months, and the fee lately authorised the final Stage 2 solar-plus-storage PPA that was awaiting determination. The fee additionally requested us to contemplate including photo voltaic to our proposed battery storage venture on Maui, and we’re engaged on a proposal to take action. In addition, the fee indicated it could rethink our proposed Hawaii Island battery storage venture that had beforehand denied after we be taught whether or not we secured Infrastructure Investment and Jobs Act or IIJA funding for that venture. Renewable capability authorised by the PUC beneath Stage 1 and a pair of RFPs that stay energetic totals practically 575 megawatts with 2,250 megawatt hours of battery vitality storage.
We are persevering with to hunt extra clear vitality sources issuing our draft Stage 3 RFPs for Oahu, Hawaii Island and Maui, totaling 1,600 gigawatt hours yearly of variable renewable dispatchable vitality and between 540 and 740 megawatts of renewable agency capability. We are working to develop buyer sources as nicely. Our expanded good meter deployment continues with good meters now in place for greater than 20% of shoppers, and we now have higher flexibility beneath our latest fee determination to handle prices inside the associated fee restoration mechanism for that program, in addition to search restoration of extra O&M related to the elevated deployment. Finally, our state’s RPS legislation has been up to date and is now primarily based on renewable era as a p.c of whole era quite than a p.c of gross sales, in step with our RPS-A Performance Incentive Mechanism or PIM.
The impact of this system change is that precise outcomes might be decrease whereas the RPS targets stay unchanged. However, all of our plans are designed to exceed the RPS-A targets, so we stay assured we’ll meet our RPS targets. Ensuring reliability and resilience for our prospects all through this transition is a key precedence. We’ve purposely accelerated overhauls and upkeep on our producing models to fulfill electrical energy wants and improve reliability because the coal plant approaches retirement.
This, together with inflation, has impacted our O&M previously two quarters, and we count on related dynamics for the remainder of the 12 months. Strengthening our resilience to the impacts of local weather change can also be vital. Last month, we filed a five-year plan with the fee that, if authorised, will permit us to harden our grids whereas limiting buyer invoice impression to lower than $1 a month. Last month, the fee issued an order within the performance-based regulation, or PBR docket, creating three new efficiency incentives protecting era reliability, price administration and well timed completion of interconnection research and increasing the timeframe for the grid companies incentive.
We suggest that the brand new PIMs be efficient January 1, 2023, and our request is pending PUC approval. The final result displays the collaborative efforts of the PBR Working Group, which the fee has designated as a type for refining and growing additional proposed efficiency incentives going ahead. We know our prospects are feeling financially challenged as inflation and excessive gas prices proceed to stress family bills. Due to present excessive oil prices, we additionally count on a short lived enhance in buyer charges when the AES coal plant retires.
We have complete efforts underway to assist prospects handle their utility payments. This consists of providing versatile cost plans, connecting prospects to authorities and non-profit utility help packages, encouraging electrical energy conservation, vitality effectivity and participation in our DER packages, transitioning away from fossil gas era to utility scale mounted price photo voltaic and storage and persevering with to search for methods to enhance our price construction comparable to via a cost-saving worker retirement program redesign we lately applied. Turning to the financial institution. ASB continues to carry out very nicely and maintains its high-quality place, together with its low-risk profile, strong credit score high quality and low-cost funding base.
The financial institution’s outcomes for the second quarter are in step with dynamics we anticipated this 12 months. Loan development was robust through the quarter throughout many of the financial institution’s portfolio. We did see a return to extra normalized provision expense to accommodate that development, lowering financial institution earnings in comparison with the prior 12 months and linked quarters. We proceed to see wholesome exercise in our mortgage pipeline.
The rising price setting drove margin expense within the second quarter and the Federal Reserve’s extra price enhance final month is predicted to spur additional enlargement — I’m sorry, the rising price setting drove margin enlargement within the second quarter, and the Federal Reserve’s extra price enhance final month is predicted to spur additional enlargement. Our financial institution’s digital transformation stays on observe. We lately upgraded to Zelle for person-to-person funds and proceed to put money into our digital transformation, together with in buyer relationship capabilities and information administration. Now, I’ll hand the decision over to Paul, who’s serving as our interim CFO till we full our course of to fill the CFO place.
Paul Ito — Interim Chief Financial Officer, HEI
Thank you, Scott. Hawaii’s financial system stays wholesome, and we imagine it’s nicely positioned to maneuver a few of the financial headwinds we’re seeing. Tourism arrivals have continued to strengthen. And in June, we’re near 90% of pre-pandemic ranges.
Total home passenger counts year-to-date via July 2022 had been very robust, over 11% increased than the entire home passenger accounts year-to-date via July 2019. International arrivals, which historically account for over 1 / 4 of our whole are nonetheless nicely beneath 2019 ranges. International tourism is choosing up, nevertheless, and can function a further tailwind for our financial system. Japan is a key supply of tourism for us, and in June, we noticed the best stage of Japan arrivals since April 2020.
Arrivals from Canada at the moment are approaching pre-pandemic ranges and arrivals from different worldwide markets are additionally increased than final 12 months, though nonetheless nicely off of pre-pandemic ranges. Visitors are additionally spending extra with June customer expenditures 12% above 2019 ranges. Hawaii’s housing market has traditionally been robust in comparison with the mainland, and we have seen explicit power this 12 months with housing costs hitting data in a number of months and stock remaining tight. Our housing market has carried out nicely on a relative foundation via downturns.
From 2008 via 2011, the decline in single-family residence costs in Hawaii was lower than half the mainland common. This housing market stability, which is the results of restricted provide and engaging location contributes to our financial institution’s robust credit score high quality as 85% of the financial institution’s portfolio is actual property secured at conservative loan-to-value ranges with a weighted common mortgage to worth on a residential portfolio of lower than 50% and on our industrial portfolio of lower than 58%. Hawaii unemployment has additionally fared comparatively nicely throughout downturns. During the nice monetary disaster, Hawaii’s unemployment price peaked at 7%, whereas nationwide unemployment reached 10%.
Hawaii’s unemployment has trended favorably since its pandemic peak of 24% in April 2020 and was 4.3% in June, down from 5.9% in June of final 12 months. In abstract, whereas there’s measured optimism for the near-term path of the Hawaii financial system, we proceed to observe inflation and provide chain dynamics in addition to the chance and potential impacts of recession very carefully. However, on a relative foundation, the Hawaii financial system has fared nicely via downturns previously and is at the moment secure. Turning to Slide 6.
Our second quarter outcomes mirrored strong execution throughout the enterprise. The utility continues to carry out nicely in its first full 12 months beneath PBR, and earnings had been up 5% versus final 12 months. We are seeing some pressures on utility O&M, which I’ll focus on shortly. The financial institution noticed robust mortgage development and increasing internet curiosity margin, though earnings had been impacted by a extra normalized provision expense given the quarter’s robust mortgage development.
Consolidated final 12 months return on fairness remained wholesome at 10.4%. utility ROE was in keeping with expectations at 8.2% regardless of O&M pressures and financial institution ROE remained robust at 13% on a final 12 months foundation. On Slide 7, we present the key variances throughout our enterprise in comparison with the second quarter of final 12 months. Lower financial institution internet revenue was primarily pushed by a return to a extra normalized provision expense $2.8 million this quarter in comparison with the unfavorable provision of $12.2 million recorded within the second quarter of 2021.
Recall that we anticipated decrease financial institution earnings in comparison with 2021 as we had sizable provision releases final 12 months coming off massive provisions taken in 2020 because of the pandemic. The financial institution noticed robust mortgage development within the quarter. And though we did have some provision releases on account of favorable credit score developments, the releases had been greater than offset by provision expense, primarily pushed by mortgage development. Net curiosity revenue of $61.8 million was up $1 million versus the second quarter of final 12 months due primarily to increased common incomes asset balances partially offset by anticipated decrease payment revenue related to the Paycheck Protection Program, or PPP, as PPP loans proceed to pay down.
Non-interest revenue was down in comparison with final 12 months, primarily on account of decrease bank-owned life insurance coverage revenue and decrease mortgage banking revenue as the upper rate of interest setting has impacted mortgage manufacturing. The financial institution noticed barely increased non-interest bills and like most firms, the financial institution has seen upward stress on compensation and profit prices because of the tight labor market. Compensation and profit bills had been additionally impacted by increased efficiency incentives from robust mortgage development. Overall, the financial institution continues to handle bills nicely because it invests in its digital transformation.
On the utility facet, the 5% increased internet revenue was primarily pushed by increased annual income adjustment or ARA revenues and better main venture interim restoration revenues from grid modernization. These objects had been partially offset by increased O&M bills, which had been primarily pushed by extra producing facility overhauls and upkeep carry out in addition to increased dangerous debt expense. If you recall from final quarter, we messaged the continuation of upper producing facility upkeep all through this 12 months, which is pushed by our efforts to take care of reliability as we method the AES coal plant retirement and by elevated upkeep wants as we cycle our older producing fleet extra typically to accommodate intermittent renewable vitality. To guarantee ample reserve margins, we would have liked to speed up and full our producing unit overhaul work in shorter durations of time, driving up prices.
In addition, inflationary price pressures have additionally impacted O&M. Bad debt expense has additionally been employed than anticipated given excessive gas oil costs, resulting in increased buyer builds. Last 12 months’s deferral of COVID-related dangerous debt expense magnifies the year-over-year variance. Turning to Slide 8.
utility capex via the second quarter was roughly $125 million. This 12 months’s capex has been decrease than anticipated on account of headwinds from persevering with provide chain disruptions allowing delays and useful resource availability constraints. We now anticipate that capex might be on the decrease finish of our $350 million to $400 million vary for the 12 months. Turning to drivers for the remainder of the 12 months for the utility.
As I discussed earlier, we count on continued O&M pressures from increased producing station overhaul and upkeep bills to take care of reliability as we transition off coal and cycle our turbines extra typically. In addition, we’re experiencing inflationary pressures on prices that exceeded the two.8% inflationary allowance supplied beneath PBR for 2022. Inflationary adjustment for 2023 might be decided by the forecasted 2023 GDPPI in October of this 12 months. We additionally count on dangerous debt expense pressures ensuing from increased gas oil costs and better buyer accounts receivable to persist via the 12 months.
Although we beforehand anticipated O&M for the 12 months to be throughout the ARA allowance, we now count on it to be modestly above that stage. We are additionally now forecasting a internet penalty this 12 months from efficiency incentive mechanisms due principally price danger sharing mechanism for which we count on to incur the utmost penalty given excessive gas prices. We beforehand anticipated that higher warmth price efficiency would considerably offset that, however warmth price efficiency have moderated since final quarter. We additionally count on that rewards from our interconnection PIM might be barely decrease than beforehand forecasted.
Turning to the financial institution. ASB’s internet curiosity revenue development within the quarter continued to replicate development in incomes belongings and better yields, significantly within the industrial and industrial actual property mortgage portfolios. We’ve additionally been capable of keep a low price of funds at 5 foundation factors flat versus Q1. The low price of funds has been a sturdy benefit for ASB even in rising price environments.
Net curiosity margin expanded to 2.85% versus 2.79% final quarter as the advantages of a better price setting and better yields had been solely partially offset by decrease PPP charges. We’ve now acknowledged practically all remaining PPP charges with about $300,000 left. Turning to drivers of financial institution efficiency for the remainder of the 12 months on Slide 11. The market now expects the Fed funds price to be round 3.5% to 4% by year-end.
We count on to proceed seeing internet curiosity margin advantages from the upper price setting. Although on a comparative foundation, quarter over quarter, we’ll see some offset from decrease PPP charges. We now count on internet curiosity margin for the 12 months to be close to the excessive finish of our 2.7% to 2.85% steering vary. We count on to proceed seeing decrease mortgage banking revenue this 12 months given decrease mortgage manufacturing on account of increased rates of interest.
We anticipate some continued stress on non-interest expense as we stability price administration with inflationary and labor market situations in addition to prices associated to our digital transformation. We proceed to see a wholesome pipeline throughout the mortgage portfolio and count on to proceed to redeploy runoff from the funding portfolio to fund mortgage development. Now turning to our steering updates. On the utility slide, as talked about, we expect capex on the decrease finish of our $350 million to $400 million steering vary.
We are additionally anticipating that PIMs might be a reasonable drag this 12 months primarily based on the elements famous earlier. We additionally count on utility O&M to be modestly above ARA-allowed ranges with continued stress this 12 months from increased producing station overhaul and upkeep bills, increased dangerous debt expense and inflationary pressures. Overall, we count on utility EPS to be on the decrease finish of our $1.68 to $1.78 steering vary. On a longer-term foundation, we nonetheless count on 2022 to 2024 earnings development of roughly 5% with upside from PIMs.
Turning to the financial institution. As talked about, we expect NIM on the increased finish of our steering vary. Given the inflationary setting and pressures on compensation and profit bills, we now count on non-interest expense to be barely above the prior 12 months. We are reaffirming financial institution EPS steering within the $0.59 to $0.68 vary, potential to be within the higher half of that vary.
We are nonetheless anticipating a holding firm lack of $0.28 to $0.30 for the 12 months, excluding the $0.06 acquire on sale at Pacific Current within the first quarter. Overall, right now, we’re reaffirming our consolidated steering vary for the 12 months of $2 to $2.20. Now, I’ll flip the decision again to Scott.
Scott Seu — President and Chief Executive Officer, HEI
Mahalo, everybody, for becoming a member of us. We stay up for your questions.
Questions & Answers:
Operator
[Operator instructions] The first query comes from Julien Dumoulin-Smith with financial institution of America. Your line is open.
Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst
Excellent. Thanks a lot for the chance to attach there. Appreciate it.
Scott Seu — President and Chief Executive Officer, HEI
Hey, Julien.
Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst
Hey, hey. Thank you. Maybe simply to kick us off right here, you mentioned a second in the past to cite you, proper, you count on utility earnings to be on the decrease finish of the vary with upside from PIMs. Can you focus on the PIMs upside potential right here simply contemplating the commentary from earlier within the remarks, with respect to the gas price and the way these doubtlessly impression your PIMs expectations together with the rewards from interconnect? I simply need to perceive precisely what’s mirrored in steering and the way that upside from PIMs may materialize at this level when you can communicate to it slightly bit, if you’ll, the places and takes.
Scott Seu — President and Chief Executive Officer, HEI
Yeah, I’ll begin off, after which I’ll pitch it over to Shelee and staff on the utility. But that assertion, as you recall, the place we’re referencing the ’22 via ’24 earnings development. And whereas we’re undoubtedly seeing some PIMs headwinds this 12 months, we’re nonetheless a doubtlessly strong RPS-A PIM within the years ’23 and ’24. And then so far as the sphere price sharing, PIM, sure, we’re, particularly, being challenged this 12 months due to the excessive gas oil costs.
But like everyone, we expect that to reasonable as we go ahead. But let me ask Shelee and staff in the event that they need to add on to that.
Shelee Kimura — President and Chief Executive Officer
Yeah. You acquired that proper, Scott. Hi, Julien. This is Shelee Kimura from Hawaiian Electric.
So sorry, simply taking off my masks right here. Still on this COVID world. So the touch upon the upside for PIMs actually is speaking concerning the longer-term outlook. As Scott indicated, for 2022, we’re actually not anticipating to have the ability to hit the PIM for RPS-A and that is the place we get the best potential.
But going ahead, and that is due to the entire delays we have had due to provide chain and tariff impacts, all of the issues that you simply most likely learn about very nicely. We needed to push again the in-service dates for a lot of of our renewable tasks. So that is additionally pushing again our PSA incomes potential, and that is the place we see the upside going ahead.
Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst
Got it. And may you guys remind us simply how that resets right here with respect to the gas 12 months over 12 months past ’22 into the ’23, ’24 interval?
Scott Seu — President and Chief Executive Officer, HEI
Shelee? Team?
Shelee Kimura — President and Chief Executive Officer
Yeah, are you able to simply make clear your query once you mentioned gas?
Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst
Just how ought to we take into consideration the elevated gas price cascading into ’23, ’24, once more, internet of those different elements that you simply simply described, if we will attempt to quantify that slightly bit extra. Obviously, it has been a headwind this 12 months, however how do you concentrate on it within the subsequent 12 months, even when it is moderating, if you’ll?
Shelee Kimura — President and Chief Executive Officer
Yeah. Well, a number of elements, gas goes to be considerably unpredictable. We’re anticipating the impression for our prospects to be up proper now. But we do — we’re hopeful that it’ll come down in 2023.
But after all, no one has that crystal ball. The different factor is that our gas ranges will get reset, and that’s in January, after which I’ll ask Tayne so as to add to that.
Tayne Sekimura — Senior Vice President and Chief Financial Officer
This is Tayne. Just a fast abstract of how the gas price risk-sharing mechanism works. In every January, a base index worth is about for that gas price sharing mechanism. And relying on the place costs go through the 12 months, up or down, it determines how a lot we’d have by way of a penalty or reward.
So actually, the costs are going to be set in 2023 — January 2023 would be the base index. Does that make sense in any respect?
Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst
Yes, completely, proper. What is a decrement this 12 months may contribute to upside in subsequent durations, particularly contemplating the reset interval with the order right here for the tens interval ’23, which is — in some respects, what I used to be attempting to get at earlier about what the places and takes right here in future durations as nicely, proper? The extent of moderation may very well be a constructive contributor subsequent 12 months.
Scott Seu — President and Chief Executive Officer, HEI
Yeah, and Julien another factor — sorry another factor so as to add was that — so primarily, as Tayne was describing, in January — is when it will likely be reset, proper, by way of the gas worth index. And then as we’d count on to see if gas costs are capable of decline as we get into 2023, then that truly is a profit for us. So it has gone relying on the 12 months and relying on what the January gas costs are, that is going to find out whether or not or not that is a constructive upside for us or unfavorable.
Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst
Right. And perhaps kind of to deliver it in collectively tremendous rapidly right here. As you concentrate on that ’24 interval, you have acquired a 5% quantity on the market by way of development. What is the hypothetical upside from PIMs contemplating this new order and simply the outlook in the present day, if I may tie all of it collectively right here?
Tayne Sekimura — Senior Vice President and Chief Financial Officer
Julien, that is Tayne. Yeah, I’ll take that query. We do have some steering on the RPS-A PIMs within the supplies that, that gives the largest alternative there. So you may see the ranges we have now for 2023 between $2 million and $6 million after which in 2024, between $5.2 million and $8 million.
But along with that, we even have a abstract of our PIMs. And there are PIMs such because the grid companies PIM, the interconnection PIM, which all present some upside there. And the opposite factor that we additionally did not speak about right here is there are some new PIMs that doubtlessly may very well be efficient in 2023, awaiting a PUC determination on the efficient date of these new PIMs. But there are some upsides there for the collective shared financial savings mechanism for example.
Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst
Right. Numerous items shifting right here. Thank you, guys in your persistence. I respect you guys strolling via this.
I do know there are numerous items.
Scott Seu — President and Chief Executive Officer, HEI
Thanks, Julien.
Operator
Thank you. Our subsequent query comes from Paul Patterson with Glenrock Associates. Please proceed.
Paul Patterson — Glenrock Associates — Analyst
Hey. Good morning. Can you hear me?
Scott Seu — President and Chief Executive Officer, HEI
Hey, Paul.
Paul Patterson — Glenrock Associates — Analyst
OK. So I apologize if I missed this, however the Inflation Reduction Act, may you guys — and I apologize I did not hear a lot about it, I’m afraid. What do you guys give it some thought, typically talking?
Scott Seu — President and Chief Executive Officer, HEI
Yeah. So typically talking and I’m certain you are listening to from different utilities alongside the identical strains. We see numerous potential upside, particularly with respect to the tax credit score provisions very supportive of our renewable vitality methods and tasks. And finally, that may profit our prospects as nicely.
So good laws. The extra tax provisions really don’t seem like they might impression us simply because we’d fall beneath the edge. But general, it appears to be like like a constructive piece of laws. But let me ask if Paul or anyone else desires to supply some extra colour.
Paul Ito — Interim Chief Financial Officer, HEI
Yeah, that is Paul. So yeah, as Scott talked about, we’re more than happy by the progress that’s being made to sort out local weather change with the Senate approval yesterday. Obviously, we’re nonetheless evaluating the invoice. We’re not on the end line but.
But as Scott talked about, we’re more than happy with the clear vitality incentives that may additional incentivize Hawaii’s transition to 100% renewable, which is able to, once more, as Scott talked about, decrease price for our prospects, but additionally speed up the utility’s progress in attaining its aggressive local weather motion plan. The one provision, as Scott talked about, that numerous utilities are — we’re centered on outdoors of the incentives, after all, was this minimal tax. And as a result of we’re nicely beneath the edge, we can’t be affected by it. But there are numerous provisions on the tax credit score facet that we’re hoping that may profit the broader group, but additionally the low to reasonable revenue phase of our inhabitants.
So clearly, there’s loads there for us to undergo, however we really feel excellent about this new invoice.
Shelee Kimura — President and Chief Executive Officer
This is Shelee Kimura. I used to be simply going so as to add that, as you heard, we have now lots of of megawatts that we’re in search of and RFPs which are developing. of renewable vitality. And so it will actually assist decrease price for our prospects as we undergo this procurement course of.
And that is what we’re eager for. It actually will depend on the timing of when that is available in and the timing of our RFPs and the bids that come via.
Paul Patterson — Glenrock Associates — Analyst
OK. Great. There was — one of many PIMs that you simply talked about when the newer PIMs is that this era reliability one. Is that just for company-owned era, I’d assume? Or does that additionally contain of PPAs?
Scott Seu — President and Chief Executive Officer, HEI
That is simply fourth era, proper? I’m sorry, go forward, Shelee. You can make clear it.
Shelee Kimura — President and Chief Executive Officer
I’ll let Colton reply that.
Colton Ching — Senior Vice President, Planning and Technology
Good morning, Paul. This is Colton Ching from Hawaiian Electric. Yeah, so the era PIM, reliability PIM, encompasses each utility-owned in addition to third-party IPP era efficiency in whole. But as Scott talked about, it’s for era brought on occasions separate from the present or the earlier transmission and distribution staff that we at the moment have.
Paul Patterson — Glenrock Associates — Analyst
OK. So the reliability of third events, you may be incentivized to I assume, ensure that they’re performing. Is that the concept? I imply, I assume what — the slight concern could be is that it isn’t utterly in your management, I’d suppose. Or how ought to we take into consideration that?
Colton Ching — Senior Vice President, Planning and Technology
Yeah. Yeah. So Paul, it’s a totally different approach, proper? In which we’ll must handle the efficiency and reliability of impartial energy producers. But due to Hawaii’s state of affairs the place our IPPs are long-term companions with us, we have now, for a few years now, have had contracts with — very vital efficiency necessities and the way we handle the reliability and operation of these amenities in addition to having the suitable sorts of partnerships with our IPP in order that they, to know the position that they’ve in preserving all the time grids dependable.
The reliability additionally comes from how our system operators dispatches all the fleet of era, the mix of impartial energy producers in addition to our models as nicely.
OK, nicely, thanks a lot for the information and have a great one.
Operator
Thank you. There are at the moment no questions within the queue. [Operator instructions] As there are not any additional questions within the queue, I wish to move it again to the administration staff for any closing remarks.
Julie Smolinski — Vice President of Investor Relations and Corporate Sustainability
Thank you, everybody, for becoming a member of us in the present day. And please do tell us if any additional questions come up afterward. Have an important week. Thanks.
Operator
[Operator signoff]
Duration: 0 minutes
Call individuals:
Julie Smolinski — Vice President of Investor Relations and Corporate Sustainability
Scott Seu — President and Chief Executive Officer, HEI
Paul Ito — Interim Chief Financial Officer, HEI
Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst
Shelee Kimura — President and Chief Executive Officer
Tayne Sekimura — Senior Vice President and Chief Financial Officer
Paul Patterson — Glenrock Associates — Analyst
Colton Ching — Senior Vice President, Planning and Technology
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