Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Hawaiian Electric Industries Inc. Earnings Conference Call. My name is Regina, and I will be your operator for today. [Operator Instructions] Today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Shelee Kimura, Manager of Investor Relations and Strategic Planning. Please go ahead, Ms. Kimura.

Thank you, and welcome to Hawaiian Electric Industries Third Quarter Earnings Conference Call. I'm Shelee Kimura, and joining me today are Connie Lau, HEI President and Chief Executive Officer; Jim Ajello, HEI Executive Vice President, Chief Financial Officer and Treasurer; Dick Rosenblum, Hawaiian Electric Company President and Chief Executive Officer; and Rich Wacker, American Savings Bank President and Chief Executive Officer, as well as other members of senior management. Forward-looking statements will be made on today's call. Please reference the accompanying disclosure to the webcast slides located on our website. I'll now turn the call over to Connie Lau.

Thank, Shelee, and aloha to everyone. First, I'll provide an overview of the quarter and an update on our strategy. Jim will then provide more details on the economy and our results for the quarter. Third quarter earnings were $0.50 per share compared to $0.35 per share in 2010, reflecting improvement over last year's depressed levels as a result of great relief, decoupling implementation, continued cost management and solid bank performance, year-to-date result of $1.09 compared to $0.95 last year. At the utility, we continue to work towards full implementation of the Hawaii Clean Energy Initiative. We aim to be a leader in our state's effort to reduce dependence on imported oil. This is not only critical for our environment. It's an economic imperative and an energy security imperative. This is a significant undertaking for an island utility system that is almost 80% dependent on imported oil. Integrating the amounts of renewable energy needed to achieve our RPS goal while maintaining reliability requires major strengthening of our grid and significant investment in both infrastructure and expanding operating and maintenance programs. We've been working to implement a new regulatory framework, including decoupling, to help us recover these expenditures and earn an adequate return on investment so that we can successfully fund these efforts. Major progress has been made, and we are now starting to show improvement in our earned return. However, there is still a lot to be done. Last quarter, after receiving the PUC decision, which delayed the revenue of the new RAM or rate adjustment mechanism by 5 months each year, and the July interim rate case decision for Oahu, we indicated that HECO Oahu's ROE goal of 9% in 2012 would be much more challenging to achieve. But we are not prepared to revise the goal as we…

Thanks, Connie. I will first briefly address the Hawaii economy. Hawaii's tourism industry, a significant driver of Hawaii's economy, continued to reflect a trend of positive growth from 2010. Tourism continues its strong recovery, with September visitor arrivals up 4% and visitor expenditures up 19.7% as compared to the same month last year. This marks the 17th straight month of increase in visitor expenditures. Year-to-date, visitor arrivals were up 2.7%, and expenditures were up 14.7%. Hawaii Department of Business, Economic Development and Tourism expects total 2011 visitor arrivals to increase by 3% from last year and visitor spending to increase 12%. Economists believe visitor spending is currently on pace to approach the record level set in 2007. Hawaii's unemployment rate of 6.4% continues to track significantly better than the national rate of 9.1% in September. Statewide, residential home sales were up, but median home prices were down in September. At our inventory levels, the mix of homes being sold and the elimination of the 2010 federal tax credit have often been cited as factors in the softer median prices. Overall, Hawaii's economy is expected to continue to grow modestly as improvement spreads beyond the tourism sector. At the utility, net income for the quarter -- for third quarter of 2011 was $38 million compared to $22 million in the third quarter of 2010. The various after-tax components of the $16 million net income improvement are detailed here on Slide 7. Overall, the increase was primarily driven by regulatory action and continued cost management. We had $6 million of rate relief granted to all 3 utilities and $5 million net decoupling adjustment recorded for Oahu. This included $7 million for sales decoupling and 1 month of revenue adjustment mechanism, offset by $2 million in lower fuel efficiency savings attributable to the…

Thanks, Jim. In summary, we continue to execute on our strategies, which are focused on creating fundamental value in our core, utility and community banking franchises. The utility has made significant regulatory progress over the past few years. We continue to work on improvements in our existing regulatory mechanisms. In order to successfully fulfill our clean energy role in our state, we are focused on achieving returns that support the increasing level of capital anticipated. At the bank, despite the challenging interest rate and regulatory environment, we continue to be a high-performing community bank and are focused on creating steady, profitable growth. Turning to our dividend. Our dividend yield remains attractive and above the average for utility peers. As of yesterday's close, our dividend yield was 4.9%, and we're very proud that 2011 marks our 110th year of paying dividends continuously. Overall, we see solid opportunities to grow our business. We believe we are well-positioned to deliver attractive earnings growth with reduced risk and volatility and an above average dividend yield. With that, we look forward to hearing your questions.

[Operator Instructions] And your first question comes from the line of Paul Patterson with Glenrock Associates.

The ROE change in terms of now 8.5%, I gather that this -- I mean, could you give us a little bit of a flavor as to what the biggest element of that is? I mean, you have timely software cost recovery and the 5-month delay in RAM. Could you just sort of give us a flavor? Is it the RAM delay that's the big deal?

Paul, this is Dick Rosenblum. Yes, I would say the RAM delay is our primary focus right now, although as we get into large software projects in the future, the software recovery becomes critical.

Okay. Now the $100-million-basis-point issue, could you just elaborate a little bit on that? I mean, I'm talking about the heat rate -- I'm sorry, deadband. How that could go away and if you could just give us a little more flavor for that.

Again, this is Dick Rosenblum. At HELCO, we currently are recovering significant bonus because of our favorable heat rate. When decoupling is implemented, the heat rate mechanism gets a deadband around it. The nature of the deadband is to significantly reduce the bonus we recover because we're in a deadband and therefore, don't get anything inside that deadband.

Because we put in place a very efficient steam unit.

Okay. Now when we talk about regulatory refinements, the PUC, I'm just wondering what would the timing be when we would maybe see the PUC? What's the thought process in terms of how long that could take?

I think it's very difficult to predict when the PUC will issue any changes. We certainly see a PUC that is supportive of all the moves we're making and supportive of the utility being financially whole. But as you well know, these are very, very significant changes in the regulatory model, and they take time. And there are no regulatory deadlines for when the various changes might come out.

Okay. And then finally, with the net interest margin, you said that you see it declining somewhat. Do you expect it to still be above 4% in 2012? Could you give us a little bit of a flavor for what your expectation is?

This is Rich. Yes, we -- for the year in total, we would expect it to be just north of 4%. It's --, quarter-by-quarter, it's a little bit challenging to call right now. But for the year in total, we would expect it to be.

For next year, right?

Yes, right.

Yes, right. But, Paul, I'd also suggest when you think about the net interest margin, there is some noise in that number from the refinancing waves that occur periodically. So that's, I think, the thing that makes it more difficult to predict because you don't know exactly what the interest rates are going to do. And any time there's a big refi wave, you get an acceleration of the prepayment penalties into the -- or the deferred loan fees into the net interest margin.

Okay, great. And then finally, the Regulation E, it doesn't seem to be really impacting you guys, and you guys are -- how would you say -- see that going forward? I mean, it looks like things are okay.

It impacted us quite a bit year-over-year. Where we are since it took effect in August last year, we've reached the point of relative year-over-year stability on that now.

That's what I meant. I'm sorry. But I guess what I mean is going forward, the fallout pretty much is we're not going to see much more of that, do you think, right?

We probably have about another $1 million of pressure year-over-year related to some changes we made in terms of payment posting orders and de minimis caps and daily caps based on the new guidance that's pending. But the big impact is absorbed.

I said, Paul, that it will be flat to the fourth quarter, right?

And I appreciate the clarification. I didn't mean to make it sound like it didn't have any impact.

Yes, I know. We worked hard to cover that.

Yes, we lost $8 million from it.

Your next question comes from the line of David Paz with Bank of America Merrill Lynch. David Paz - BofA/Merrill Lynch: I just wanted to confirm on the lower CapEx for this year. Should we think of that as just -- I think you said it was mostly timing. Should we be just thinking about [Audio Gap] being recovered in 2012?

You cut out. But I think you asked, is that just timing and it's essentially putting off until later. And the answer is yes. By and large, these are associated with the things that we all know about the EPA regulations coming out a little later than anybody anticipated. And the normal delays we see when customers ask for an upgrade and then say they really need it a little bit later. David Paz - BofA/Merrill Lynch: Okay. Okay. But -- so timing though would still be -- we're still talking some time in 2012?

Yes. For those costs, yes. David Paz - BofA/Merrill Lynch: Okay. So it shouldn't really impact for the most part your average rate base for 2012, I think, at HECO. And then just if we think of -- I was looking through your slides. I know in the past, you had slides where you talked about your goal for 2014 of earning -- I believe it was about 9.5% HECO or maybe the language was more like 50 basis points below your allowed ROE. Should we -- is there any impact on that target from what you did today regarding 2012?

David, this is Jim Ajello. The starting point here has been reset to the 8.5% level at HECO Oahu. And what we said is we're working on refinements to the ROE goal. So we thought what we would do is take that slide out because it took you from a 9% starting point in a different level. So we'll recast that when we have more clarity on the refinements that we're doing. David Paz - BofA/Merrill Lynch: Got it. Okay. And then just maybe an address, I apologize. But on the fuel efficiency savings, how should we expect that going forward for like, say, 2012? Should we expect similar to what you saw this year?

David, the fuel efficiency savings for HELCO and MECO, when decoupling come, that's when the heat rate deadband will go in. So it really depends on the timing of the interim decision. Otherwise, we would expect the operating conditions to continue. David Paz - BofA/Merrill Lynch: Got it. Okay. And then last question on the bank. Can you just remind me why you lowered your pretax pre-provision income from 110 to 120, to 105, 110 earlier this year? And then just what will get you back to that previous target for like 2012?

Yes, the principal change in the environment has been the yield curve outlook and the low flat interest rate environment. And so it's more of a net interest income view, combined with, I think, a challenging environment on raising the noninterest income [indiscernible] when you look at some of the headwinds in the regulation, the regulatory environment. David Paz - BofA/Merrill Lynch: All right. So assuming no change in the yield curve, would 105, 110 be similar -- will we see that in 2012? Are there other items and others -- can you have any maneuver -- can you move around your noninterest expense? Or are there any levers -- other levers you can pull to get back to the higher range for the yield curve?

Yes, well, I think the areas that we are -- that we've talked to you about is really trying to get the organic growth going that would help contribute more on that side. And so -- but I think the range that you talked about is probably realistic as we look forward 1 year. We continue to want to raise it above that as we look beyond 1 year, but I think the range -- that slightly lower range is realistic.

David, the expense levels are at significantly lower levels than they were 2 years ago. Liability costs are extremely low. So in a word, no.

Yes. And, David, that's also assuming again we don't get another huge refi wave. As I said earlier, every time that happens, it ratchets portfolio yields downward.

This concludes the question-and-answer portion of today's event. We have no other questioners. So I will go ahead and turn the call back over to Ms. Kimura for some closing remarks.

Thank you, everyone, for joining us today. And we look forward to seeing many of you at EEI next week. Thanks a lot.

Ladies and gentlemen, thank you for your participation in today's broadcast. This does conclude our presentation, and you may now disconnect. Have a great day.