Good day, ladies and gentlemen, and welcome to the second quarter 2008 Hawaiian Electric Industries Incorporated earnings conference call. My name is Eric and I will be your coordinator for today. At this time, all participants are on a listen-only mode. We will facilitate a question-and-answer session towards the end of this session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host, Ms. Suzy Hollinger, HEI Manager of Treasury and Investor Relations. Please proceed.

Aloha and good afternoon. Thank you for joining us for an update on Hawaiian Electric Industry. Here with me from management and speaking today are Connie Lau, HEI President and CEO; and Tim Schools, ASB President; Curt Harada, HEI Acting Financial Vice President, Treasurer and CFO; Tayne Sekimura, HECO Finance Vice President; and Alvin Sakamoto, ASB Executive Vice President, Finance are also on the call. Connie will start today's presentation with a few comments on the second quarter earnings and the Hawaii economy and will then move to an update of the utility operations. Tim will discuss the bank, and Connie will make some closing remarks. At the end of the presentation, we will open it up for your questions. Before I hand the call over to Connie, I would like to alert you that forward-looking statements will be made on today's call. Please reference Roman IV [ph] of our second quarter Form 10-Q for information about forward-looking statements. Now, let me turn the call over to Connie to begin the formal comments.

Good afternoon and aloha to all of you. I'm pleased to report that we had a very solid second quarter. As you know, GAAP earnings were $0.06 per share but included previously disclosed charges related to the successful restructuring of our bank's balance sheet. Excluding the effects of the balance sheet restructuring charges, net income would've been $41 million or $0.48 per share represented by the orange bar in this chart. All areas of the company contributed to this good performance. Our utility saw continued recovery from very low earnings a year ago while we were waiting for needed rate increases to earn a return on reliability investments and to recover higher operating costs. Excluding the balance sheet restructuring charges and several other items which helped bank net income by $2 million which we don’t expect to recur each quarter, core bank earnings and profitability improved nicely from the prior quarter and significantly over the prior year quarter. Holding and other company losses were lower primarily due to lower interest and general and administrative expenses. The financial details of the quarter were included in our second quarter earnings release and Form 10-Q that were filed yesterday and we would be happy to answer any questions you have at the end of the formal presentation. As many of you know, our operating companies have been keenly focused on improving their financial and operating performance. I'm pleased to report that much has been accomplished since our last call to position our company for improved profitability. Our utility staff has been working hard to file a 2009 test year rate case for our main utilities that was filed just after quarter end. The requested $97-million rate increase is to recover the cost of a new 110-megawatt peaking unit on Oahu which will be…

Thanks, Connie. Good morning everyone and thank you for joining us. ASB had an exciting second quarter which included our most successful home equity and checking campaigns in the history of the company, made continued progress in reducing our operating expenses and embarked on a formal performance improvement project designed to enhance our operational and financial performance. Of special note, the company elected to reduce the size of its balance sheet causing an after-tax charge tax of $35.6 million related to the early termination of debt and realizing losses on investment securities. This was a strategic decision and a strong first step to showing our commitment towards improved performance. By reducing our balance sheet, we expect to pay a special dividend of approximately $75 million to our parent AGI over the next three quarters while maintaining our current earnings level and with minimal impact to capital ratios and interest rate risk ratios. The initiative will greatly enhance the company’s return on assets, return on equity, and net interest margin beginning in the third quarter. Quickly, here is a look at our GAAP numbers. Our second quarter financial results, detailed in the slide, included several items that we do not expect to recur in future periods including the charges related to the balance sheet restructuring. To help you better understand our second quarter results on this slide, I've listed the after-tax impact of these items. Now let me walk you through the trends of our return on assets and four key drivers. Please note, all periods will be GAAP numbers with the exception of excluding the balance sheet restructuring charges in the second quarter of 2008 and excluding $20.3 million of charges recorded in connection with a tax settlement in the year 2004. While the trends in the following slides are…

Thanks, Tim. To sum up, we've had a very good second quarter earnings excluding the bank balance sheet restructuring charges were strong and much was achieved to position the company for increased profitability. Interim rate relief received in 2007 continues to help our utility earnings recover. We recently filed a 2009 test year rate case for Oahu utility to recover and earn on our biofuel peaking unit which is scheduled to go into service in mid-2009 as well as other capital additions and higher expenses since the prior 2007 rate case. We continue work on critical reliability project and are focused on recovery of these investments in earning a reasonable return through the rate case process. We are very excited about our leadership role in reducing Hawaii's dependence on fossil fuel and supporting more energy from renewable sources, and we are working closely with the DOE in the state of Hawaii to establish workable, clean energy policy under the Hawaii Clean Energy Initiative. Excluding the bank balance sheet restructuring, our bank performed well in the second quarter. The said easing of interest rates this year continue to have a positive impact on our margins and credit quality remained good, and with the balance sheet restructuring substantially complete and execution, productivity improvement, and product enhancement strategies underway our bank's position for improved profitability and capital efficiency. The bank intends to return excess capitals of holding companies that will be used primarily to pay down short-term debt. We continue to recognize the importance of the dividend to our shareholders. Our dividends yield at around 5% remains attractive. Yesterday, we announced that our board has continued a quarterly dividend $0.31 per share payable on September 10 to shareholders of record on August 18. Next dividend will be August 14. All in all, we were very pleased with this quarter and look forward to demonstrating additional good performance this year. This now concludes our formal remarks and we will be happy to answer your questions.

(Operator instructions) Your first question comes from the line of Paul Patterson with Glenrock Associates. Please proceed. Paul Patterson – Glenrock Associates: Good morning guys.

Hi Paul. Paul Patterson – Glenrock Associates: I wanted to touch base with you guys on the provision for loan losses. You mentioned that your overall loan portfolio credit quality remains good but you say that you remain cautious and are actively modeling a loan portfolio. Are there signs that the local economy and the real estate market is slowing? What do you mean – you guys did describe what you saw there, obviously economically you are happy with – is there anything more you’d like to sort of – is there anything else that sort of on the horizon that you’re seeing or it seem like a cautionary statement, I just was sort of wondering what you’re feeling out there?

You know, Paul, that’s a discussion that a lot of executives around town has been having because it’s clear that our Hawaii economy is slowing particularly the visitor industry but we aren’t seeing it every time [ph] with the numbers just yet. So there maybe a (inaudible) that is going on. So that’s a reason for the cautionary note. Paul Patterson – Glenrock Associates: Okay. But there’s no specific loan or something that you feel might be in trouble or is there anything like that happening?

No, because the way the provision rules work from an accounting standpoint, if there was a loan that we felt was in trouble we would have to write that down. We have a rating scale of one to ten and as you rate things down you have to go ahead and provide for that now. So if there was some loan that we felt was going from a risk grading six to risk grading eight, we would be required to set aside more provision today. You don’t wait before it's charged off. So the provision is a good indication of our outlook for credit at his time, but as Connie said, unfortunately, in credit there’s always underlying effect [ph]. So we see everyday articles come out here as it relates to tourism in Hawaii and then Connie has mentioned sort of the airplanes and the cruise lines. Paul Patterson – Glenrock Associates: Okay.

To be at the asset quality ratios that we are at today is just amazing. As Tim mentioned and it’s still near historical load and intuitively it doesn’t seem right given what’s been happening nationally and then also in the Hawaii economy but it is the way Tim described it.

And it’s really two things for us that’s why I tried to make that point. You really need to take the time to understand a bank’s asset mix. One is Hawaii, in general, tends to be more stable over time. So at this point, we’ve not experienced what the Mainland has experienced. We don’t know if it will come here. But number two, our balance sheet is very different and even the local banks here. The vast majority of our assets are in 30-year fixed rate mortgages. So it’s not a secondary loan, it’s not a car loan, or home equity loan, or credit loan. So those tend to be the last ones that people default on [ph] is on their house. Paul Patterson – Glenrock Associates: Sure. The service expenses that went down by $3.7 million and just – I think, year-to-date, they’ve been about almost twice that, I think. And you mentioned the consulting and litigation expenses and you also mentioned that you guys are basically undertaking the cost initiative and the key is here, you guys were transforming and these expenses were growing quite a bit, it didn’t seem when I asked you about it whether or not they were transitory, it seems that felt a lot of them were sort of big. I was wondering, what’s specifically – was there a specific accounting – excuse me – specific consulting or litigation expense that we should be thinking about in the first half of the year or just sort of a run rate, should we be going back to 2006 to 2005 run rate number? I’m just trying to get a sense as to where you think that number can come and then you mentioned that contract, just one contract, it sounds like $3 to $3.5 million you can save money on. Just how should we think about that?

Paul, let me start off and then I’ll let Tim finish up. Historically, you are correct. I had talked about the services expense which was at that time primarily consulting continuing because we were transforming a company. We’re still transforming a company and so we have always used a lot of consulting expense. I think what Tim on board now, the philosophy is different where we are really trying to strengthen the management ranks to be able to do a lot more ourselves. And so that’s a lot of what is happening as you’re seeing that expense shift and let met now let Tim talk about where he’s headed from here with that.

I agree with that and I guess the way I think about it is last year. Big picture. I don’t remember the exact number but our annual expenses were around a $184 million and I think Alvin’s here, but I think there was roughly $9 million that was related to some legal expense for some of the litigation that we had. So you could say that core operating expense may have been in the 175 range and one of the things – when you do these scripts you go to so many versions. Something got taken out but the one point I wanted to point out was that for our size banks in that peer group, we – Alvin and I studied the six banks that are generally around our size and everything’s going differently. Every bank has different cost of labor, cost of real estate, but in general, the banks that were $5.5 billion in size, their non-interest expense was about a $150 million to $160 million. So we were about 184 last year. If you take out 9 for the litigation, that puts us at 175. If you take the 44 that we had in the second quarter and you multiply that by 4, that’s getting lower and so, I hope that we can find – you take the $3 million that I just mentioned to you that we found on the contract, I would hope that we could get somewhere approaching that 160 number the others are at. We do not have all the answers yet but that’s the kind of stuff we’re studying now that the balance sheet is done. Paul Patterson – Glenrock Associates: And that includes all the non-interest expense categories that you’re talking about or is that specifically out of services or – that are possibly – very specific area that you see that being majority coming out of or –?

Where we see opportunity? Paul Patterson – Glenrock Associates: Yes.

Across the whole enterprise. A lot of opportunity is in automating our branches. Our branches, I think you would find our customer service scores at least equal if not higher than much of the competition in Hawaii. We get very high marks on our customer service but our automation would be lacking. So there’s a lot of opportunity to install automation which hopefully will drive more revenue because you don’t want to increase efficiency just from cost cutting. So hopefully that will drive more revenue but also hopefully it will bring a better employee experience and customer experience by better automation. Paul Patterson – Glenrock Associates: Okay.

Paul, if you think about what we have been doing is we’ve been focusing a lot on building out the commercial banking, commercial real estate part of the business so that we could help diversify the balance sheet and add on the higher yield, ensure the duration assets. And while we had done some of this type of work in the past, the biggest opportunity is on the retail side of our business and transforming that. And that’s really what Tim’s getting at today in the basic operational areas as well as taking a look across the entire enterprise.

Paul, just in closing again, the three numbers I’d write down is 184, I think is the run rate last year. We had roughly 9 million save legal. That puts you at 175. The 2004 expense level was 164. That was the 2004 level, and that had like no legal in 2004. And if you take our second quarter, I just told you it’s 44.1. Remember that includes the $1.9 million for the EPA technology project write-off. You subtract 1.9 from that 44.1, you’re at 42.2. Multiply that by 4. That’s a $168-million run rate. So at a $168-million run rate we are approaching the 2004 expense run rate. And then if you take that 168 and subtract the 3.5 million that we’re going to get in this contract re-negotiations, you’re down to 165. So we are, by January – it’s not unrealistic that we could be approaching the 2004 expense run rate. Paul Patterson – Glenrock Associates: Okay great. Then just finally on the Oahu rate case, intervener testimony when is this supposed to come out? Do we have a schedule on that yet?

There’s no schedule out currently. Paul Patterson – Glenrock Associates: Okay. Thanks a lot guys.

Next question comes from the line of Steve Fleishman with Catapult Capital Management. Please proceed. Steve Fleishman – Catapult Capital Management: Hi. Connie, can you hear me?

Yes, I can. Steve Fleishman – Catapult Capital Management: Hi, how are you?

Good. Steve Fleishman – Catapult Capital Management: Question on the quarter at the utility. If you look at the fuel and purchase power recovery both in rates and then in costs, it looks like you got about $25 million more in revenue for fuel and purchase power than you got in cost going up? It looks like the revenue was $175 million, I think, higher but then fuel and purchase power went up $150 million.

Yes. Steve Fleishman – Catapult Capital Management: What would you explain that? Is that a timing issue or because that obviously seemed – if I am calculating this right to have a pretty big impact from the quarter?

Yes, Steve, let me start and then I will turn it over to Tayne to give you the detail, but basically one of the primary reasons in there is that we have an efficiency standard in the use of our fuels and so we’ve actually been able to achieve – I mentioned all of our companies have been looking at improving their operating our financial performance so our generation guide has been really focusing on the efficiency of the unit and so that is a big part of that.

The other part of the difference there is the revenue taxes that we pay so that would be the difference. Revenue taxes amount to close to 9%. Steve Fleishman – Catapult Capital Management: 9%, so essentially all that $175 million increase, you would have 9% higher taxes on that? Okay. Total higher revenue?

Actually included in that amount are the revenue taxes, the 175. Steve Fleishman – Catapult Capital Management: Okay, but then the taxes are there below the line in the other taxes that go up.

That is correct. Steve Fleishman – Catapult Capital Management: Okay, so I think if you net that out, you’re still up – it was a smaller number. You are up more like $0.06 or $0.07 from this, okay. On the efficiency rider [ph], does that – I think you mentioned you might have more average time in the second half. I do not know if that was average time or that was just more general cost timing. Does that impact the efficiency measures?

Actually, it is even sustained. What impacted the efficiency measures are the types of units that we have on overhaul and depending on the timing of those overhauls. So in the second half of the year, we are going to see some overhauls on our reheat units which are more efficient units and so that is where you have this efficiency kind of issues that come up. So, in another way Steve, the units that were out for maintenance in the first half of the year were our less efficient unit. Steve Fleishman – Catapult Capital Management: Okay. So if you have the more efficient unit, you might get less of the fuel benefit?

Correct. Steve Fleishman – Catapult Capital Management: Than in the second half? Okay. And then just to clarify, your rate relief flows through evenly. The interim relief flows through evenly throughout the year?

Once the interim increase goes into effect, then rates are increased and so you have to back up to the dates of those interims. The HELCO one was at the end of the first quarter. The big HECO increase was October 22, and I believe Maui was December 13.

To give a little bit more details, the rate relief that comes in is really the function of sales that come in throughout the year, Steve. Steve Fleishman – Catapult Capital Management: Okay, so it isn’t going to be even, it is more?

No, it is not even. Steve Fleishman – Catapult Capital Management: Okay. Thank you.

Your next question comes from the line of James Heckler with Levin capital Strategies, please proceed. James Heckler – Levin Capital Strategies: Hi, good morning.

Hi. James Heckler – Levin Capital Strategies: I was wondering if you could talk about the rate increases that customers might have been experienced throughout the year given oil price increases year to date. I understand significant portion of your generation is oil-fired.

Right. If we were to look at the average Oahu bill year over year, it has been about a 50% increase on net cost and that is primarily coming from the increase in the fuel. James Heckler – Levin Capital Strategies: Do you supposed that will – you had want too [ph] in the rate case that you currently filed in achieving the matrix that you are targeting?

Raising rates is always a very difficult thing to do especially when a community in total is being hit quite hard by fuel increases but it’s very important for us to put in the peaking unit on Oahu and that will help in some of the O&M increases that we have been experiencing because of the aging infrastructure. So there are trade-offs in the rate case and that’s why the total increase that we’re requesting is about a 5% increase which we think is in a reasonable range. Our gas company just recently filed for about an 8.4% increase. James Heckler – Levin Capital Strategies: I see. Thank you.

Next question comes from the line of Steve Gambuzza with Longbow Capital. Please proceed. Steve Gambuzza – Longbow Capital: Hi, how are you?

Hi! Steve Gambuzza – Longbow Capital: A question on the facility [ph]. You mentioned that O&M was flat this quarter but I think it should be full year O&M numbers is expected to be up about 6% versus ’07, is that correct?

Yes, slightly higher than 6 which is what we experienced in the first quarter. Steve Gambuzza – Longbow Capital: So really, you’re going to have an accelerating O&M. Second half is going to be significantly higher than the first half.

Correct. Steve Gambuzza – Longbow Capital: Okay. And then on the bank, you mentioned in your remarks that deposit growth was positive in the quarter, core deposit growth, but in the 10-Q, I believe it indicated that there were some decline in deposits.

That’s because people report deposits different ways. Total deposits would include CDs and in my comments, my comment is that we are strategically reducing our wholesale funding and our CD balances. CDs would be your highest cost consumer deposit. Steve Gambuzza – Longbow Capital: Okay.

And so most people use a core deposit definition. So you have total deposits and you have core deposits. Core deposits would be more of your transaction accounts, you money market accounts, savings accounts, checking accounts; deposits that you more likely can cross-sell. On CDs, I’m just learning Hawaii, but in the Southeast like in Florida, you got people that – you go get a doughnut and coffee at every branch in the morning just to get five basis points more, and they’re not really looking for relationships. So, most banks focus on core deposits. Steve Gambuzza – Longbow Capital: Okay. And then, it appears that – I know there was some discussion of the issues regarding the reserves. It appears that the actual amount of reserves has actually declined relative to the average loan balance and then on non-performing assets sequentially, which kind of implied that the credit quality is actually not deteriorating but is actually getting better. Is that the (inaudible) we’re looking at?

I’m not sure – Are you referencing the coverage of the allowance to NPLs? Steve Gambuzza – Longbow Capital: The non-performing loans as well as the average loan balance.

Well, I mean it’s essentially flat to a loan balance, right? 74 and 73 basis points. I guess I would call they were short of neutral. I don’t think it really improved. I don’t think it worsened. If you – the key indicators on that slide I pointed out is that there is two things that people typically look at. Your allowance to loans was 73 basis points this quarter and it was 74 basis points last quarter. So that’s essentially covering our total amount of loans for the same amount. But then you’ve got to look at what’s our analysis of those loans. Are they getting better or worse? So, the second thing people look at is the coverage to NPLs, what we are calling non-performing loans. And our coverage went to 3.5 times and it was 4.2 times in the first quarter so that measure actually is modestly down, but in any one quarter it can go up a little bit and down a little bit so that movement does not alarm me. Steve Gambuzza – Longbow Capital: Okay.

So I would call it even, if it were me. Steve Gambuzza – Longbow Capital: Okay. Thank you very much.

The next question comes from the line of Ashar Khan with SAC Capital. Please proceed. Ashar Khan – SAC Capital: Good morning. I just want to check, is there anymore rate cases toward the planned from now on to next year.

We don’t have any other rate cases that are currently planned; however, we do have other large facilities that are being built. I mentioned that we have SP7 going on the Big Island and also our East Oahu transmission lines which is scheduled for service in 2010. So as we get closer to those in-service dates, we’ll be reevaluating whether the rate case is needed. Ashar Khan – SAC Capital: Ms. Connie, if you look at future – only revenue increasing in ’09 will be this income case that gets filed [ph], is that correct, which will have interim hike somewhere in the middle of the year or something like that next year?

Yes, that’s correct. Ashar Khan – SAC Capital: And then, we should kind of like forecast – you don’t expect anything revenue enhancing until 2010 in terms of a rate case decision or interim decision. Would that be fair?

Well, the way the rate case process works is that an interim decision should come within 10 months if there is no hearing and 11 months if there is a hearing, and so that would put us into June of 2009. And then you are correct, the final decision will just follow and there is no time (inaudible) on that. Ashar Khan – SAC Capital: Right. But if you plan to file on any other jurisdiction, results on that won't happen until somewhere in the middle ' 010 or something like that. Would that be correct?

Yes, that is correct if we follow our normal filing schedule when we file six months in advance for the test year. That's correct. Ashar Khan – SAC Capital: Okay. Thank you very much.

Your next question comes from the line of James Bellessa – D.A. Davidson & Company. Please proceed. James Bellessa – D.A. Davidson & Co: Good morning. You know why does the vegetation not growing in even basis throughout the year?

Oh that is actually a – James Bellessa – D.A. Davidson & Co: Vegetation management expenses different from quarter to quarter?

That's a great question, Jim. You must have been here. I don't know if you remember but we have the 40 days and 40 nights which was very unusual for Hawaii in the spring of 2006 and so actually that really has impacted the vegetation schedule because it relates to the rate of growth of the vegetation which does relate to rainfall and so the rain that fell in early 2006 really impacted vegetation management expenses in late 2006 and into 2007, and then now it's just about that time for us to be going back again to maintain that vegetation. James Bellessa – D.A. Davidson & Co: How about the timing of the overhauls. They aren't evenly spaced throughout the year?

That is also something that is quite lumpy. A lot of our larger units are on the five to six-year overhaul schedules and so it really depends on what units are coming up and as we mentioned earlier in particular our two neighbor island utilities overhauled units last year and did not have those this year although we are expecting some in 2009.

In addition to what Connie said, the overhauls from our independent power producers can also impact the schedule as well. James Bellessa – D.A. Davidson & Co: I was reading in your local newspaper that you are going to be a partner in algae to biodiesel plant.

Yes. James Bellessa – D.A. Davidson & Co.: Tell us how much you might be investing? What are your commitments there?

Yes, actually, it's at of the memorandum of understanding stage and at the moment we are looking at principally providing the CO2 from our plant at Mount Waialeale which the algae really used to grow and the land owner in the area that owns the land adjoining our plant is one of the partners in this consortium and their contribution would be the land and they are possibly looking at the capital investment. The remaining partner is the original developer who is a scientist from the University of Hawaii and he has been talking with various venture capitalists about providing the capital for the plant. James Bellessa – D.A. Davidson & Co: Are you just going to send them all your fuel gas or are you going to be able to separate the CO2 up?

We are looking at being able to separate out the CO2. James Bellessa – D.A. Davidson & Co: And are you making that capital investment or is this other entity who is putting together the plant making that capital investment?

At the moment all of that has not been determined yet. We're still in the discussion stages. James Bellessa – D.A. Davidson & Co: Thank you very much.

(Operator instructions) It appears we have no more audio questions at this time.

Thanks everyone for being on the call.