Hawaiian Electric Industries, Inc. (HE) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Hawaiian Electric Industries Incorporated Earnings Conference Call. My name is [Anne] and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes.[Operator Instructions]. We will be facilitating a question-and-answer session following the presentation. I would now like to turn the presentation over to your host for today's call, Shelee Kimura, Manager Investor Relations and Strategic Planning. Please proceed.

Thank you, [Anne], and welcome to Hawaiian Electric Industries' 2012 yearend and fourth quarter earnings conference call. Joining me this morning 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's President and Chief Executive Officer; and Rich Wacker, American Savings Bank President and Chief Executive Officer; as well as other members of senior management. Connie will provide an overview of the quarter and an update on our strategies. Jim will then update you on Hawaii's economy, our results for the year and fourth quarter, and will provide 2013 earnings guidance. Then we will conclude with questions and answers. In today's presentation we will be using non-GAAP financial measures to describe the company's operating performance. Our press release and webcast presentation materials which are posted on our Investor Relations website contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the equivalent GAAP measures. Forward-looking statements will also be made on today's call. Actual results could differ materially from what is described in those statements. Please reference the forward-looking statements disclosure accompanying the webcast slides which provides additional information on important factors that could cause results to differ. The company undertakes no obligation to publicly update or revise any forward-looking statements including EPS guidance whether as a result of new information, future events or otherwise. I'll now turn the call over to our CEO, Connie Lau.

Thank you, Shelee, and aloha to everyone. As all of you know, HEI is both a bank holding company as well as a utility holding company. As such, we filed our financial report with our bank regulators last night, and thus the timing of our earnings release and this call are related to the timing of that filing. As shown on slide two, full year reported earnings were $1.42 per share in 2012, down from $1.44 per share in 2011. As we disclosed on January 29, our utilities entered into a comprehensive settlement agreement with the Hawaii Consumer Advocates and we've now submitted that agreement to the Hawaii Public Utilities Commission for approval. Our GAAP earnings include the $24 million after-tax write-down related to the agreement and described in the January 29 8-K. The agreement recognizes that the cost of oil remains stubbornly high in Hawaii, which is then felt by our customers in high electric bills as fuel makes up more than half of customer bills. This is especially felt on our neighbor islands which are served by our Maui and Hawaii Island utilities. If approved the PUC, the agreement would result in our Hawaii Island utilities' withdrawal of its 2013 rate case with its next rate case not until 2016. Maui Electric would not have another rate case until 2015. Moving to slide three, excluding the after-tax write-down of regulatory assets in 2012 and 2011, core earnings reflect a strong operating performance in the year. Core earnings per share were $1.68 compared to $1.50 from the prior year. This reflects the first year that all three utilities will be coupled under Hawaii's new regulatory model. This model was intended to make revenues more stable and predictable to provide the financial stability and health necessary to support the utility as it helps facilitate Hawaii's move to a clean energy future. The bank continued to deliver high-performing metrics in a challenging low interest rate environment and continues to be one of the better-performing banks in its class across the country. As shown on slide four, HEI's core ROE improved to 10.3% in 2012 from 9.5% in 2011. The utility's core ROE improved to 8.5% and the bank continued to provide a strong ROE of 11.9%. Turning to slide five, the utility continued to make significant progress in implementing its clean energy and reliability strategies in 2012. Utility sales from renewable energy exceeded 13% in 2012, with agreements signed to add 136 megawatts of wind, solar and waste energy capacity in 2012, and with more clean energy already in the works, we expect to exceed our 2015 renewable portfolio standards of 15%. With a focus on operating utility-owned generating units more efficiently, we saved 250,000 barrels of oil in 2012 and we made over $300 million of capital investments to continue the modernization of our electric grid, enabling the utilities to reliably integrate increasing amounts of renewable energy. We continued our focus on keeping our customer bills as low as possible. Since oil represents more than half of our customers' bills, our primary initiative continues to be replacing oil with lower-cost renewables. In addition, we are pursuing other initiatives to lower customer costs, and we made progress on both near-term and long-term efforts in 2012. For example, we continue to focus on operating efficiencies and achieve reductions in fuel usage and in planned O&M expenses while still executing on work plan. We refinanced a third of the utility's debt, reducing the average cost of debt from 5.4% to 5.1% on a pretax basis, the equivalent of $4 million. We worked with the State of Hawaii and other entities to complete an initial round of study to pursue the use of liquefied natural gas as a cleaner and lower-cost fuel to replace at least in part the petroleum that would otherwise be used. We concluded that liquefied natural gas is a viable lower-cost alternative to oil and are working with others to find ways to bring LNG to Hawaii. On the regulatory front, the Hawaii PUC issued several key decisions in 2012, all of which support reducing Hawaii's dependence on oil and ensuring the liability for our customers. Telco and HECO and MECO were authorized to implement decoupling under the new regulatory framework, aligning all our utility's businesses with the state's clean energy and energy efficiency goals. Our Maui utility MECO received final decision for its 2010 rate case and an interim decision was granted for the 2012 rate case. In 2013, we continue to focus on customer costs as a top priority. We are scheduled to issue three RFPs in 2013 which total 280 more megawatts of renewable generation. We will continue to pursue ongoing initiatives to achieve greater internal efficiency and manage costs. We plan to refinance additional long-term debt to lock in rates while they continue to be at attractive levels. We will continue to support the state in pursuing LNG, and pursuant to the settlement agreement, we will not have a general rate case in 2013 due to the withdrawal of the HECO rate case and will therefore focus on aligning our operations with our new decoupled model to maintain our utility's financial health. Turning to American Savings Bank on slide seven, we continue to execute well on our strategy to safely grow the bank in this prolonged low interest rate environment and deliver solid profitability metrics relative to our publicly traded peers. For the year, the bank's return on assets was 118 basis points, very attractive compared to our peers and high-performing peers. We achieved our financial performance targets for return on assets, loan growth, net interest margin and pretax pre-provision income. Our bank team met our low to mid single-digit growth target for loans by safely growing the loan portfolio in each of our strategic segments of commercial lending, commercial real estate, home equity lending and consumer lending. We ranked number one in the state for the second year in a row in hillock loan production, a good product in Hawaii where real estate has maintained or increased in value, and we grew that portfolio by 18%. In 2012, American almost doubled its 2011 mortgage production, gaining market share and outpacing the growth of the overall Hawaii market. Although we chose to sell a portion of these mortgages to control interest rate risks, we maintained the customer relationship and generated increased gain on sales. These gains helped fund spending on the bank's strategic priorities supporting our longer-term growth, including development of new products and services and the implementation of new analytical tools to strengthen our risk management and market segmentation capabilities. Overall, the bank continues to maintain its low risk profile, strong balance sheet, terrific funding base, and straightforward business model. Looking forward, the bank will continue to focus on prudently growing its franchise as a safe and high-performing community bank. The bank's priorities for 2013 focus on loan growth and non-interest income growth through expanding relationships in our growing customer base, introducing new value-added products and services, and growing segments in which we are currently under-represented. We will continue our disciplined approach to grow our loan portfolio in the mid-single-digit range, partially offsetting the expected decline in margins from the ongoing low interest rate environment. As we grow, we expect to maintain strong asset quality. Through these efforts, we expect also to maintain industry-attractive profitability metrics. I will now ask Jim to provide additional detail and insight to our results and the outlook for 2013.

Thanks, Connie. As a backdrop to our results and outlook, I'll briefly comment on Hawaii's economy which is [expected to] improve. The tourism industry had the best year on record in 2012. 2012 visitor arrivals were up 9.6% and expenditures were up 18.7% compared to 2011. Visitor spending has grown year over year for 32 consecutive months and the 2013 outlook for the visitor industry remains positive. Local economists expect construction to begin to recover in 2013 due to an increase in non-residential and public sector projects. Statewide unemployment is at 5.2% in December, with Honolulu at 4.7%, the lowest level in four years and remains low compared to the national average of 7.8%. Overall, we expect continued improvement in the Hawaii economy with expectations of an expanding job [takes] as construction strengthens, tourism continues its healthy gains, and growth broadens to other segments. On slide 10, GAAP utility net income for 2012 of $99.3 million was essentially flat with $100 million in the prior year. However, core utility net income was $123.7 million in 2012 or $18 million higher than 2011. The increase was primarily driven by a recovery of cost from rate cases and decoupling, partially offset by higher O&M expenses. And looking at changes in utility revenues between periods, we focus on net revenues. The net revenues that are shown on this slide before the operating revenues net of fuel oil purchase power and taxes other than income taxes, for the year, net revenues after-tax were $28 million higher than last year, largely driven by, on an after-tax basis, $29 million related to the Oahu 2011 and Maui County 2012 rate cases which included sales decoupling, better generation efficiencies in Oahu which resulted in $5 million of earnings, and $1 million related to the revenue adjustment mechanism for Oahu, $3 million related to the first year of decoupling at HECO which resulted in lower heat rate savings and a negative RAM, and $4 million higher franchise taxes and other items primarily related to an adjustment for prior periods. Operations and maintenance expense after tax were $9 million higher compared to the prior year, slightly lower than the 4% we had guided last year and below the original 6% guidance for the year. At the bank, net income for the year was down 2%, better than our 2012 guidance of down 3% to 5%. The $1 million decline from 2011 was primarily attributed to after-tax $4 million lower net interest income from declining asset yields, partially offset by asset growth, and $5 million higher non-interest expense, largely driven by strategic spending to build capabilities for future growth, supporting higher production levels and funding higher employee benefit expenses. These are offset by $6 million in higher non-interest income, primarily driven by gains on sales into residential mortgages, and $1 million in lower provision expense. Now we'll look more closely at utility. Slide 12, at the utility, the core ROE improved -- continued to improve in 2012, as shown on slide 12. On a consolidated basis, the utility earned a core ROE of 8.5% compared to 7.7% a year ago and 5.8% in 2010, reflecting the transformation of the regulatory model over the last two years. Our largest utility in Oahu was the driver for this improvement. Its core ROE was 9.4% in 2012 compared to 7.1% a year ago and 6.1% in 2010. This improvement reflects a full year of cost recovery from its 2011 rate case under the new regulatory model and better-than-expected heat rate earnings due to the efficiencies in generation, as well as managing O&M to levels for which we are recovering costs. 2012 core ROEs for Hawaii Island and Maui County utilities were generally within expectations of approximately 7%. Maui's 2012 ROE reflects spending in advance of cost recovery in its 2012 rate case. As expected HECO's returns were lower than the prior year due to the 2012 implementation of the heat rate dead band and higher O&M. Slide 13 reflects the revised rate case schedule based on the 2013 settlement with the Consumer Advocate. Currently, MECO 2012 is the only open rate case as we await a final decision. Subject to approval of the settlement agreement, we will withdraw the HECO 2013 rate case and delay filing the HECO 2014 rate case approximately half a year to early 2014. We will continue to follow the original three-year rate case cycle under the decoupling model, thereafter with MECO and HECO having rate cases in 2015 and 2016, respectively. On slide 14, you'll note the utility's updated five-year capital expenditures forecast is $2.9 million in total, with approximately $1.9 million in maintenance CapEx and $1 billion in major initiatives. The $2.9 billion forecast presented here includes a $700,000 or a 40% discount factor to major initiatives to reflect the heavy dependency in externalities. This accounts for the likelihood of being able to execute all initiatives as planned. In major initiatives chart at the bottom of the page, the amount shown reflect the undiscounted estimates. Many of our major initiatives depend on external factors which could impact our ability to execute. For example, utility's environmental [clients], our plan is depended upon regulatory approval and timing. The inter-island interconnection expenditures are dependent on permitting and the RFP and new generation is subject to competitive bidding. Overall we expect attractive long-term rate base growth. Now we'll look more closely at the bank. Our net interest margin was 3.81% in the fourth quarter of 2012. The 11 basis points decline from the linked quarter was primarily attributed to lower yields on interest-earning assets as loans continue to re-price down due to the low interest rate environment. Our liability costs of 23 basis points in the fourth quarter of 2012 declined from 25 basis points in the third quarter and is extremely low by industry comparisons, reflecting the value of our stable low-cost deposit base. As shown on slide 17, loan growth continued in the fourth quarter at an annual rate of 3.5%. For the year, the bank grew at a steady rate of 2.6%, consistent with our expectations. Growth in our strategic segments were partially offset by a controlled decline in long-term fixed rate residential mortgages and loan loss, consistent with American strategy to improve its interest rate and credit risk. Turning to credit quality, the bank recorded a $3.4 million provision for loan losses in the fourth quarter of 2012, bringing its annual provision to $12.9 million. This reflects a $2.1 million improvement to 2011 and consistent with our 2012 guidance range of $13 million to $16 million for the year. Net charge-offs totaled $8.8 million in 2012 or 50% lower than 2011. Full-year 2012 net charge-off ratio of 0.24% or 24 basis points compared to 0.49% in the prior year, reflecting improving credit trends and the strengthening Hawaii economy. The allowance for loan losses was 1.1% of outstanding loans at $42 million at yearend, slightly higher than the 1.06% compared to the linked quarter and 1.03% as of the year -- prior-year quarter-end. The increase in the allowance is due to, first, loan growth, and second, higher reserves for commercial portfolios. On slide 19, ASB's non-performing assets ratio is 1.87% at the end of the fourth quarter versus 1.73% at the end of the third quarter and 2.01% at the end of the fourth quarter last year. It remains better than its high-performing peers. The 14-basis-point increase from the linked quarter was primarily due to one commercial borrower and land loans in the process of modification. Slide 20 is American's balance sheet, which shows you the attractive asset funding mix of American relative to its peer banks. We compared American's December 31, 2012 balance sheet to the last complete available data set for our peers which is as of September 30, 2012. Ninety-nine percent of our loan portfolio was funded with low-cost core deposits versus our peers at 89%. In 2012, core deposits increased by $230 million to $2.3 billion -- $3.8 billion, a record high, which helped fund our loan growth while maintaining a very low average cost of funds of 23 basis points in the fourth quarter of 2012, 38 basis points lower than the median for our peers. American remains well-capitalized with a leverage ratio of 9.1%, tangible common equity of total assets of 8.4%, and total risk-based capital of 12.8%, all at 12/31/2012. In 2012, American paid $45 million in dividends to HEI while maintaining a leverage ratio of 9.1%. Now, HEI's outlook for 2013. HEI continues to maintain its strong capital structure with 52% consolidated equity to total capitalization at 2012. This is consistent with our long-term capital structure at 52% equity. In 2013 we expect American will continue to pay a hefty dividend of $40 million. This is a slight reduction from its 2012 dividends of $45 million in order to fund its planned loan growth and maintain its target ratios of 9% leverage and 13% total risk-based capital. Our 2013 financing plans assume $45 million of equity from our dividend reinvestment plan. We expect to refinance $50 million of long-term debt at the holding company in 2013 and the financing for the remainder of earnings will depend on market conditions. These announcements do not include expected debt financing at utility to support rate base growth while maintaining the capital structure approved in their last rate cases. Our dividend policy remains the same until we consistently achieve a 65% payout ratio. For 2013, HEI is initiating earnings guidance in the range of $1.58 to $1.68 per share. The range assumes an estimated EPS contribution from the utility of $1.23 to $1.29 and from the bank of $0.54 to $0.57. The holding company other net loss segment is expected to be $0.18 to $0.19. These EPS estimates do not include an assumption for share dilution other than DRIP. As we undertake our attractive rate base growth opportunities, we may require additional equity in the next 12 to 24 months and we will be optimistic with the timing and amount depending on market conditions. We expect to meet our long-term target of 52% equity. As to utility, the guidance range assumes 5% rate base growth, the terms of the settlement agreement including the withdrawal of 2013 HECO rate case, O&M held at 2012 levels on a consolidated utility basis, the decoupling model which will set net revenues to the last rate case at each utility, plus the annual revenue adjustment mechanisms for O&M and rate base. The guidance also assumes a 2013 RAM, starts on June, the elimination of five-month RAM delay which was included in the settlement agreement, which would be in effect from 2014 to 2016 and therefore does not apply to 2013. At the bank, the guidance range assumes NIM between 3.6% and 3.7%, based on continued pressure on net interest income, partially offset by continued loan growth in the mid-single-digit range, steady growth in our non-interest income as we deepen customer relationships, expand our customer and product base and maintain strong, although lower gains, on sales of originated mortgages, spending on strategic priorities supporting longer-term growth initiatives including the development of new products and services which is expected to result in higher non-interest expense, and provision expense in the range of $10 million to $12 million, and finally, the return on assets of approximately 110 basis points. Now, back to Connie.

Thanks, Jim. In summary, we continue to make significant progress on our strategies in 2012. All three of the utilities are decoupled and they continue to focus on fulfilling their clean energy mandates for Hawaii. The bank continued to deliver solid results, and in this interest rate environment, we are focused on disciplined loan growth and positioning the bank for future growth when conditions improve. Turning to our quarterly dividend on February 6, the Board maintained a dividend of $0.31 per share payable on March 13 to shareholders of record on February 21. Our dividend yield remains attractive. As of yesterday's close, our dividend yield was 4.5%. We believe we are well-positioned to continue to deliver a unique investment combination of attractive and stable earnings growth with reduced risk and volatility and an above-average dividend yield. And with that, we look forward to hearing your questions.

[Operator Instructions]. And our first question comes from the line of Charles Fishman with Morningstar. Please proceed. Charles Fishman – Morningstar: Hi, good afternoon. CapEx, you are now taking a 40% discount, I think I heard you say, on the major projects. And how -- were you taking like a 20% discount before? Did I -- is my memory correct, or has something changed there? What's going on, I guess, is what I'm asking.

Yeah. You know, [previously], what we have done was to provide the amount for the major projects, and we had talked through with analysts what those projects were, and you really had to take a discount factor yourself. Now we actually have provided a discount factor, which is our best judgment as to how the actual expenditures might occur. But as you can tell, we also still have indicated that such things like generation in Hawaii are subject to competitive bidding and we may or may not win those bids. Charles Fishman – Morningstar: Okay. You were very clear on that before, but I guess, so really nothing has changed in your view, you're just presenting it probably a different way?

Yeah, we're just actually giving a discount factor now to kind of help folks out. Charles Fishman – Morningstar: Okay.

And Charles, this is Jim. You'll note from the prior period our maintenance capital, which is reflected on the blue section of the bars on slide 14, it's really not very different at all. It hovers between [340 15] and about $400 million. So that's the base of the program, and that really hasn't changed in the rolling five-year period. Charles Fishman – Morningstar: Okay. And then the O&M, holding company, earnings per share, as I -- per my modeling, I had been looking at roughly anywhere from $0.20 to $0.22 a share drag. And now for -- in '13 you're talking $0.18 and $0.19, is that really where your focus is on O&M, you know, your further costs?

No. The holding of the O&M is really at the utility. A lot of the reduction in the expense at the holding company comes from the refinancing of the debt to lower rate. Charles Fishman – Morningstar: Okay. And then at the utility where the O&M has been, I think you used the word restraint, as I recall, in the fourth quarter -- or at the third quarter call, you were talking about some of your expenses getting pushed into 2013 from 2012. So that includes -- you still feel, even with that occurring, you can hold the line with 2013 O&M at 2012 levels?

Yes, that is definitely our plan. Charles Fishman – Morningstar: Okay. Thank you.

Charles, this is Jim again. One more thing to understand, the holding company other segment expense, the number is lower, you're correct, and it in part reflects additional dilution from the dividend reinvestment plan. So that's another penny or so or two. Charles Fishman – Morningstar: Okay, got it. Thank you.

Thank you.

And our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed. Paul Patterson – Glenrock Associates: Good morning. How are you?

Hi, Paul. Paul Patterson – Glenrock Associates: So one is just basically on the equity issuance, you said it was going to be 12 to 24 months from now pretty much is what you were thinking, is that right?

That's correct, Paul. It's Jim. Paul Patterson – Glenrock Associates: And the size of it, I'm sorry, I got a little bit distracted here, what kind of size are you thinking of?

We actually didn't say the size. What we said was we'll maintain our capital structure the way it is, the equity ratio at 52%. And specifically what I said about timing was it will be, you know, within the next 12 to 24 months. I was a little emphasizing on the timing and I just gave you the capital structure levels, other than the DRIP. The DRIP you can assume will remain on and that will produce about $45 million. And we've had that DRIP on for quite sometime, and that's about a 2%, 2.5% dilution per annum. Paul Patterson – Glenrock Associates: But the guidance that you guys are giving doesn’t have any impact associated with the actual -- outside of the DRIP, any other equity issuance, correct?

That is correct, Paul. Right. Paul Patterson – Glenrock Associates: Okay.

Yeah. And that's really, Paul, because of the uncertainty on the timing of the secondary offering. Paul Patterson – Glenrock Associates: I got you. The -- with respect to -- there's discussion -- I mean I saw some stories on some legislation being introduced to review authorized ROEs. Could you elaborate a little bit on that, where it stands and what's sort of driving it?

We're going to bring Robbie Alm who's the EVP for Regulatory from the utilities to address that.

This is Robbie Alm. I think the legislature is responding as was noted I think in Connie's opening remarks to the high bills that people are still paying as a result of high oil prices, I think where you've seen legislation to look at every aspect of our utility structure and what alternatives might be. I think the reaction of actual legislative committees today has been to simply push those back to the Public Utilities Commission and ask them to take a good look at the utility, how it's functioning, and whether there are ways in which customer bills could be reduced in any way. To date there's little indication that the legislature will try to handle those kinds of issues at a legislative level. Paul Patterson – Glenrock Associates: Was there some discussion of ROEs or am I just imagining something here? Was there, maybe I'm confused, there's so much going on in the sector and what-have-you, but I thought there was a Republican legislature who was putting something forward with respect to returns. Am I wrong about that?

There was a bill introduced to that effect that got some attention. I don’t think we have current indications that that would move. And as I said, in all the other hearings, the ideas where the legislature would be specific and prescriptive to date than converted into we'd like to ask the PUC to look at various issues. Paul Patterson – Glenrock Associates: Which they already are looking at. I mean, I guess, what changes? Would there be a change, I guess? I'm not exactly clear about -- I mean, I think they look at this, right? So I mean, what is it that would be changing as a result of this?

I think, you know, I think what we're seeing is a legislative need based on how much the -- continuing high bills are affecting consumers to show a concern to their constituents and raise up the issues and sort of underline them and ask that they be looked at. Those issues are looked at anyway, but, you know, legislators I think have a feel of real responsibility to reflect to their constituents, that they heard what they want to say and heard that there's a -- that the high bills represent a tough issue for them, and that they are listening and are saying to the PUC, please take a look at this. Paul Patterson – Glenrock Associates: Okay, I got you. And I know you guys are also obviously very positive of this as well, and you are making -- taking efforts to lower costs and what-have-you, as you mentioned in the presentation. Can you give us a feel for how we should think customer bills or, you know, the initiatives that you're undertaking, how -- what kind of rate impact we should be thinking about potentially, obviously without getting into predicting the price of oil, just what you guys are sort of doing and how that -- what the outlook is, because on the one hand you've got capital expense and on the other hand you have lower fuel expenses perhaps. Just any sense as to what we should be thinking about that?

This is Dick Rosenblum. You actually can't have a discussion of customer bills without talking about the price of oil, and of course none of us can predict what the price of oil is going to be. Just to give you a feeling, 79% of our average rate is made up of fuel, purchased power, much of which is related to fuel costs and taxes, which are typically excise taxes on top of the fuel and the purchased power. So that is the bill. Paul Patterson – Glenrock Associates: Yes, sure. But I was thinking that maybe if we were just to hold that constant, how should we think about the other initiatives that you guys are undertaking? You see what I'm saying? In other words, give some sort of extent, that's what I was sort of -- I mean, I don’t -- if you can't go into it right now, that's okay. I didn't mean to -- but I was just wondering if there was any sense as to what we might see.

Absent those sorts of costs, our O&M and other increases have tended to be in the 1% to 3% a year change range. So, very, very small, totally dominated by other things. Of course, constraining O&M will help to keep those down to the very low end of that range, and we spend a lot of time really focusing on the operational efficiency. For instance, if we can improve the efficiency with which our power plan use oil, we can avoid burning the oil and make a significant impact on our customers' bills. So, you know, other than the external factors, most of what we're doing is trying to hold our costs constant or even slightly decreasing if we can increase efficiency enough.

So, Paul, that hasn't changed. You know, previously we used to talk about our portion of the bill, and by the time you look at our portion as compared to the total bill, you're looking at very modest increases of 1% to 3%. So that really has not changed. What has changed, as you noted, is that there is the concern of the high bills and so we have redoubled, tripled, quadrupled our efforts to really focus on that within our company both operationally and other strategies like the LNG. Paul Patterson – Glenrock Associates: Okay, great. And then I just -- about the bank, you mentioned that one of the goals is to gain market share in key strategic portfolios. I was wondering if you could give us a little flavor for that and what's sort of driving the gain on sales [stuff]? I think you guys are now predicting that that would decrease this year, just if you could give us a little bit more flavor on those two things.

Sure. This is Rich Wacker. As Connie mentioned in her comments, we grew last year in our commercial markets, commercial real estate, our home equity lines and then in our consumer lines, especially with our clean energy product that we have, all of those are areas where we think we can continue to add to the book. We have been the number one producer in home equity lines in our market, we were in the fourth quarter -- we've gain share in the residential in the fourth quarter, we were the number one locally-based producer of mortgages as well. Even though we didn't put all of them on the balance sheet, we've been able to do a very good job of originating per customer. This year we think we will actually -- we've gotten our book, the proportion of mortgages within our book to a little bit less than half the book. That's where we were targeting and that's where we want to be. So now as we grow the rest of the book, we will actually add mortgage volume into the book. And so that's where we think we are going to have a little bit less of the production to sell, therefore lower gains. So that's where the lower gains come from. Paul Patterson – Glenrock Associates: Okay.

And a slightly higher net gross rate on our asset growth. Paul Patterson – Glenrock Associates: And the higher non-interest expense spending on long-term growth initiatives, is that something that's going to be sort of a higher run rate going forward or is this something that's just sort of building up and that, you know, is it more of a bulge as opposed to sort of just an increasing number that we should be expecting sort of going forward, period?

There's both elements inside of it, there's a little of both. There are some things that are investments that we're making in order to take out cost in the future, so with respect to our facilities and some things there as we consolidate down to a fewer number of facilities, we got to spend a little money to get that done first. There's other things, for example, we introduced our mobile banking product last quarter, and that has a higher run rate of expense associated with it. Over time we'll see, as transactions migrate more and more online, probably some net costs. But in the short term, that's a new application in the new ongoing operating expense for us. But we think it does a good job of helping to move customers to it because it's got some unique features in our market and it's been very well-adopted. So there's those kind of things that are in there, you know, but we're quite thoughtful, I think, about how we are choosing to spend money, because it's tough out there with what's happening on the margin. So we're being very judicious about where we spend. Paul Patterson – Glenrock Associates: Okay, great. Thanks a lot, guys. Have a good weekend.

Thanks, Paul. You too.

[Operator Instructions]. And our next question comes from Charles Fishman with Morningstar. Please proceed. Charles Fishman – Morningstar: Just a quick follow-up. Utility, are your turbines set up in dual-fuel or can they be easily converted to gas, or at that point, if you did something like that, are you talking about a major amount of CapEx? And I realize that'd be out several years.

This is Dick Rosenblum. We have both combustion turbines and old -- currently oil-fired steam plants, none of them are currently multi-fuel. It is in our existing capital plan to convert all of them to multi-fuel to take advantage of LNG or diesel or whatever the lowest-cost fuel available is in the future. So that's already in the plan, it is not a major expense, and we're already embarked on that path. Charles Fishman – Morningstar: Okay. Thank you.

Ladies and gentlemen, with no further questions, this concludes today's question-and-answer session. I would now like to turn the call over to Shelee Kimura with -- for closing remarks. Sorry.

I was going to jump in for you there. But thanks, everyone, for joining us. I know it's late in the day before a long weekend. So, appreciate you folks joining us, and have a great long weekend. Give me a call if you folks have any questions. Thanks. Bye.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.