Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 Hawaiian Electric Industries Earnings Conference Call. My name is Kim and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Cliff Chen, Manager of Investor Relations and Strategic Planning, Please proceed.

Thank you, Kim. And welcome to everyone to Hawaiian Electric Industries' third quarter 2014 earnings conference call. Joining me this morning are Connie Lau, HEI President and Chief Executive Officer; Jim Ajello, HEI Executive Vice President and Chief Financial Officer; Alan Oshima, Hawaiian Electric Company President and Chief Executive Officer; as well as other members of senior management. Connie will provide an overview followed by Jim who will update you on Hawaii's economy, our results for the quarter and outlook for the remainder of the year. We will conclude with questions and answers. In today's presentation, management 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 HEI’s 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, Cliff, and aloha to everyone. Turning to our result, which we announced earlier today, both our utility and bank are on track to meet 2014 earnings guidance and are carefully managing expenses while executing on strategic initiatives. At the utility, we've been working hard to advance the plans we filed with our Commission in late August, which will help us increase renewables in our state to 65% triple customer cited solar power and reduce customer bills by 20% by 2030. These plans are proving to be a good starting point for collaboration with key stakeholders to achieve our shared vision for clean energy future for Hawaii. At the bank, we have worked to deliver stable profitable growth. Year-to-date loans to customers grew at an annualized rate of 5.9%, while credit quality remained strong. With steady local economy helped to offset the continuing headwind of a low interest rate environment. Some of you may have followed news coverage of the lava flow on the Island of Hawaii. We have been monitoring the situation closely and are working with our customers in the effective areas. At this time, our expectations are that it will not have a material impact on utility operation and our bank's total loan exposure is limited and not material as well. I would now like to highlight the status of key proceedings at the utility. We have now filed all plans and filings required by the commission in April 28, 2014 orders. The Commission consolidated our August 26 power supply improvement plan filings for all three utility companies under docket 2014, 183 and closed the docket to interveners on August 27. The Commission also issued 35 information requests to which we provided timely responses on October 10. The commission has not yet ruled on the intervention…

Thanks Connie. First, I'll briefly comment on Hawaii's economy. Year-to-date, visitor arrivals were essentially flat, while expenditures were up 2% from last year's all-time highs and still robust after many years of strong growth. Hawaii’s tourism sector is in a good position to match or break visitor arrival pending record set in 2013. Statewide unemployment remained low at 4.2% in September 2014, with Honolulu at 4%, significantly below the national employment rate of 5.5%. Hawaii real estate activity remained strong with a 4.6% year-to-date September increase over 2013 and a median sales price for single family home on Oahu in a 0.5% increase in the number of closed sales year-to-date through September. September 2014 Oahu median single-family home price was $678,500. The Hawaii construction industry exhibited strong growth year-to-date to August 14 as the value of private building permits increased 18.5% over the same period in 2013. 2014 state gross domestic product is projected by the University of Hawaii Economic Research Organization to increase by 2.9%. Overall, we expect continuing growth of Hawaii’s economy in 2014, supported by the continuing recover in the construction industry steady but slower growth in the tourism industry. Turning to our financial results as shown on Slide 5, third quarter earnings were $0.46 per diluted share in 2014 compared to $0.48 in the prior year quarter. Consolidated net income was $400,000 lower than the prior year as slightly higher utility and other segment earnings helped to offset lower bank earning. However EPS was $0.02 lower than the prior year due to the increased number of shares settled through both the equity forward agreement and through our dividend reinvestment program to support the capital needs of utilities. As you can see on Slide 6, HEI’s core return on equity for the last 12 months was 10.1%,…

Thanks, Jim. In summary, our utility has been aggressively pursuing opportunities to lower customer bills by reducing Hawaii’s dependence on imported oil, integrating more cost effective renewable and strengthening grid reliability. We're working collaboratively with key stakeholders to achieve our shared vision for Hawaii’s clean energy future and our recently filed plans with the PUCs are providing the starting point to launch an important discussions and initiative. Our bank continues to focus on its core banking business, targeting mid single-digit loan growth, strong credit quality and above average peer return that has been delivering on those promises. Our unique business model continues to provide HEI with the financial resources to invest in the strategic growth of the company while supporting the continued stability of our dividend. On Wednesday, the Board maintained the quarterly dividend of $0.31 per share. Our dividend yield continues to be attractive at 4.4% based on upon Wednesday’s close. And finally, I would like to congratulate Alan Oshima, our new President and Chief Executive Officer of Hawaiian Electric whom Cliff induced at the start. Alan brings extensive energy industry experience particularly in regulatory matters. A real passion for moving Hawaii to a clean energy future and a proven ability to bring people together to work collaboratively for needed change as a responsive and affordable energy service provider for our customers. And with that, we look forward to hearing your questions.

(Operator Instructions) Your first question comes from the line of Ashar Khan from Visium. Please proceed.

I guess good afternoon, and congratulations on a good quarter. Just wanted to get a little perspective I guess from Alan and Connie, or from the whole group, as to the hearings that happened at the end of October and how we bring that to a closure, and any comments you can share on the new plan, or any conversations you've had on the new plan, and how does that go forward in terms of its bringing that to a closure as to when we could get something out of the Commission as to what they like and what they don't like?

Yes, certainly Ashar and I think the first comment I would make with respect to the plan is the reason we call it a starting point is because it really forms the basis for community wide discussion for us to really work through a number of the issues because these are really planning documents that establish a vision for the future of Hawaii. And I think one of the things that we have always felt in is quite clear in all the discussions that we have with stakeholder is that our community is very united around the idea that people want a clean energy future for Hawaii. So there hasn’t -- there is little doubt that everybody has that same goal in mind and as you know it’s a pretty aggressive goal in our state as our new plans are looking at moving to 65% renewable. I know Allan is actually in California with Jim Ajello our regulatory head and so Allan I will turn it to you. You and Joe or both of you to comment on the recent hearings.

Hi Ashar, this is Alan Oshima. Joe is with me and he can just briefly give you the next steps in the decoupling proceedings.

Hello, so that’s correct. We had two days of hearings with the commission and the parties and the decoupling -- that’s the schedule B portion of that proceeding on October 28 and 29. There is still a procedural portion of the docket to go. When the parties receive the transcripts of the hearings they will have three weeks from that point to file their opening briefs and proposed conclusions and findings and then two weeks after that date, the parties will be able to file reply briefs. This commission has not stated when it intends to rule in that docket.

Okay. And there's no chance of any kind of settlement or anything like that? We are going to go through this through a litigative process to the end?

I think Ashar as I indicated, we are having many discussions with lots of the stakeholders. So the commission is taking all the input from all of the different stakeholders into account and coming up with the decisions that they'll be coming out with, but I think a lot of those discussions are actually just happening continually and there aren’t any particular plans for settlement outside of those kinds of discussions.

Okay. Thank you, Connie.

Your next question comes from the line of Charles Fishman from Morningstar. Please proceed.

Thank you. I was just curious, the rate base growth, you indicated it was higher deferred -- or one of the reasons was higher deferred taxes than you anticipated. Can you give any more color on that? I mean, what happened exactly?

Sure I am going to ask Tayne to give more as the CFO for the utility to address that.

Hi Charles, in our rate calculation one of the items affected or deferred taxes and this relates to the repairs deduction that we have taken. We also took a look at some of the other tax items in the accumulated deferred income taxes and then made adjustments. So with the higher accumulated deferred income taxes, that brought down lately.

So, it sounds like it was an audit of the current level, or the level on the books of deferred taxes. And then, what was the other -- the first thing you said was a -- I didn't understand that.

There is a deduction that called the repairs deduction and based on that particular item, it actually increased their deferred taxes, which reduced our rate base.

Okay. Thank you. That was it.

(Operator Instructions) Your next question comes from the line of Paul Patterson from Glenrock Associates. Please proceed.

Aloha.

Hi Paul. Aloha.

How you doing? So, just on the repairs deduction, was there any impact on EPS?

No impact on EPS.

Okay. And then if bonus depreciation is extended, could that impact your rate base growth assumptions?

Yes, this Tayne, yes it could.

Any idea about how much it might.

We don't have any idea, but if you just take a look at 2013, the impact of bonus depreciation 2013 was about $50 million and perpetual. Just as a guide.

I'm sorry, you faded out there a little bit. I apologize. I couldn't hear very well. $50 million, you said?

Yes impact. I am basing it on 2013 experience where we had the…

Right, I got you. Okay, just wanted to make sure I heard you. Okay. And then, with respect to the -- with respect to the PCEP, how are we in terms of -- you guys set out some goals that you had in the fourth quarter of signing the LNG contracts, submitting an application in this quarter. Is that still going to happen?

Alan, can I ask you to address that one?

Sure, hi Paul. We are still working on the LNG where as you know we have narrowed the field down to two finalists and we're still working through the remaining issues. We have as you know signed a liquefaction agreement with Fortis BC as a source of liquefaction in Vancouver, but we're still working through the finalist and working out details. So we're not able to say with any certainty today when that will actually decide, but we're still targeting to be on schedule.

Okay. Now, you guys also expected to be by June 1 of next year to have all the major permits granted. Have those permits been filed? Have the application for those permits been filed?

Well you know what, we're looking at right now is what we call the bridge to the bridge and it's looking at an interim source for LNG and we're looking at potential sources and logistics that will not have a lot of permitting requirements for the delivery of LNG to our plans.

Right, and I can appreciate that, but as you guys acknowledge in your piece, that this isn't an aggressive plan, and regulators are not always expeditious as one might hope. And I'm just wondering, when we look at this, what the outlook for the potential for slippage in this might be.

So Paul we can't speculate. It depends on what we file and how many moving parts there are. We are hopeful that what we file eventually will be compelling to our regulators and that there may be some processes by which we can obtain the approvals that are needed.

If there is any slippage, one of the things that comes to mind is you guys are also planning this bulk LNG a few years later, and one wonders whether or not this interim containerized LNG thing might be somewhat abbreviated, or maybe whether or not that might change in order to go for the bulk LNG, if you follow me.

We're pursing both Paul and the interim solution may lead to a permanent solution. So we can't really speculate at this point. We're working very hard on seeking the most reliable cost effective source for LNG and the timeframes that we've set forth in the plan.

Okay. I just wanted to look into that. Okay. And then, just back to the Bank for a second, there are a lot of moving parts, and I was just wondering if you could -- there were some reversals and what have you, and quite frankly I wasn't able to follow each and every one of them. And I'm just wondering, without the reversals and what have you, I know that's part of the business, but how should we think about the net interest margin provision for loan losses, going forward? Do we have a -- what kind of picture do we have in terms of going forward in those areas?

So Paul, I am totally smiling because all of us here are like so happy that somebody asked a bank question and now that our bank CFO is dying to answer a question for you, so I'll hand this one to her.

Thank you. As Jim mentioned we did revise our guidance for our net interest margin and to the higher end of the 3.5% to 3.6% range and that's really due to the fact we did have the interest recovery on the payoff of the non-performing loan that Jim had mentioned that contributed about just under $700,000 to net income and also around $600,000 to interest income. So that enabled us to increase the range. We're still seeing our standard two to three basis point decline per quarter related just to the low interest rate environment and the roll down of the portfolios and we would expect us to continue. There is also some volatility introduced by FAS-91 adjustment on a quarter-over-quarter basis and so with of those considerations in play, I would expect to be where Jim had mentioned in the higher range of the NIM guidance. Regarding provision, we have changed the guidance. Previously we had $5 million to $7 million as our guidance range and we had last quarter certainly at the lower end of the range based on our favorable credit statistics, lower delinquency, low net charge-off. We would have expected to continue that guidance. However, with the uncertainty around Puna and the lava flow, we have retracted that additional statement regarding the lower end of the range in order to allow for some volatility associated with the outcome of that lava flow situation.

Yes. The lava flow thing, I'm glad you brought that up, because I'm just sort of wondering, it's kind of unique. And what if the lava flow got much worse? Should we think about how much could that -- I guess I'm wondering is how much of that risk, because of the lava flow issue in terms of your risk -- the risk scenario that you have at the Bank? Do you follow me? In other words, I mean, if it got much worse, would we have to worry about that a lot here?

And Paul, this is Connie, I am going to ask Heather if she can maybe explain a little bit about how the loans are done and the lava insurance coverage that is on those loans so that you can get a feel for why we made the statement at the start that we don't expect the impact to be material. So Heather?

Sure. So essentially when we provide loans in a lava area, there is something called a lava zone one, two, three, four, and five depending on the risk of that particular area, it's just like flood zone, it's like flood zone right and so we have done a review of what exposure we have. Essentially it's about 100 homes that would be impacted that we have loans to and in the queue we actually did disclose about just under $13 million of exposure, mostly residential there is one commercial property as well. Based on that, when we do make the loans, we do require lava insurance for zones one and two, which is where the majority of these exposures are. So at inception of those loans, these properties were required to have lava insurance. Now really what that entails is if the lava were to destroy the home specifically, then they would be eligible for reimbursement. So the other item that is in play here is that there is a limited access point to the town of Puna and so if the lava were to cover that load and limit access, it's very uncertain of what impact that would have on the overall collateral values that those homes that we have there. So part of this is that we have lower loan to value on those exposures overall and so we do think that our total exposure is non-material as we had mentioned.

And right now, the county is also opening up a back-up access road through the chain equators, so they have the bull dozers out there breaking up the lava field to open up that access road which in prior years had actually been covered by lava. So they're basically uncaring that road again.

Okay. Wow. Okay, thanks so much.

Comes into that.

Your next question comes from the line of Andrew Weisel from Macquarie Capital. Please proceed.

Hi guys. Good afternoon. it's actually James Ward on Andrew's behalf. How are you?

Good. How are you?

Good. On Monday, you'd indicated that you intend to clear the backlog of customers who've been waiting for interconnections to be completed. This had previously seemed to be very physically demanding and onerous. What changed to make it more feasible now? And also, what impact, if any, does this have on the filed plans for the PSIP and on your relationship with regulators?

James as I indicated, we've been having lots of discussions with many, many parties here in Hawaiian and have been working actually with the power companies in the inverter manufacturers for quite a while. So I'll ask Alan to update you on what the breakthrough was.

Hi James. We've been working -- as Connie mentioned, we've working with the industry and installers, but we've also been working with national labs etcetera to test the capabilities of the inverters to see how quickly they could respond to fluctuations and recently preliminary results from those tests indicated that they could respond as quickly as we think is necessary in highly loaded circuits in order to provide some assurance that we will not experience stability or instability that would affect other customers. So that is what we caused us to relax and start moving some other customers who have been waiting for approvals in those highly loaded circuits towards approval as long. As the inverters can meet those standards we can start moving the queue again. We're looking at further improvements. We're going to continue to work with inverter manufacturers and the installers to see what kinds of capabilities can be installed in Hawaii, which is leading the nation in installations of distributed generation so that we can assure stability for the rest of our -- the 90% of our customers who rely on the grid as well that the high influx of intermittent solar and fluctuations in those -- in the production they provide will not cause disturbances to the rest of our customer base.

Perfect. Okay, thanks, Alan. So, what impact does that have, if any, on the filed plans for the PSIP? And does this have any impact, maybe a positive benefit, as far as regulators go by showing that action on your part?

Well its positive for everyone including people who are still looking to install PV, but it does not affect our PSIP. Our PSIPs as you know projected a tripling of solar up to 2030. So we fully intend that there is room for additional distributed solar in our system as long as technology allows us to keep up with the stability issues etcetera. So we're going to continue to work on this. We have teams of people who are addressing this every day from a customer perspective and working with the industry and the contractors to see how we can continue to move it.

Perfect. Thank you very much.

James, I would add that the nature of the PSIPs and the [DJ] (ph) because they go out to 2030 are in the nature of longer range planning and therefore in there we also have assumptions about what we expect as far as the cost curve for solar technology, storage technology and the like. So as Alan said, we are expecting that a lot of the cost gains that we have seen are going to continue and will move from the TV area over into storage area as well and so we want to be in a position to have Hawaii benefit from all of those favorable cost curves and renewables.

Great. Thank you.

Your next question comes from the line of David Paz from Wolfe Research. Please proceed.

Good afternoon.

Hi David.

Just a couple of housekeeping questions here. What is the base for the roughly 5% growth in rate base this year?

David, this is Tayne. Could you clarify your question?

What rate base were you assuming in 2013? What's the number, and was that an average or a year-end?

Okay. Hold on just a sec, while we look that up. Okay. Hold on David, we almost have it. David, our average rate base for 2013 is at $2.6 billion.

$2.6 billion. Okay. Great. Thank you. And then, so the ADIT, or the increase in the ADIT explains the entire movement down from roughly 9%, or what it was before, to 5%? Are there any other items?

No, it was mostly the deferred taxes, David.

Okay. Great. Switching gears, any sensitivity you can give us between changes in the low sulfur fuel oil prices to the average customer bill?

This is Tayne and I can give you some information real quickly, what we've seen is the prices that let's just take the Oahu bill as an example. From September through October we saw a decrease of our typical bill of about 2.3% and then from October to November bills another 4.7% on top of that. So in summary, we've seen bills in September average bill of $219 roughly decrease in November to about $204.

Okay. So are reductions in low sulfur fuel oil prices effectively like immediate flow-throughs to customer bills?

What happens is it stays in inventory for say like a couple of a month or so and it runs through the billing cycle. So maybe there is about a one to two month delay by the time you see the prices affecting customer bills.

So David, the flip thing is oil prices have been coming down, so we're actually expecting sales to continue to decline.

Great. Okay. And then, just on your abbreviated rate case, does the 11-month statutory deadline for an interim PC decision, does that still apply for the abbreviated rate case?

I believe it does.

Okay. But there's no procedural schedule at the moment, correct?

Correct, let me ask Alan or Joe because as you know the abbreviated rate case was a new filing for us to propose to the commission, that has asked for innovative kinds of ideas. So Joe?

Thanks Connie. Joe is sitting here with me, but this is Alan. Our abbreviated rate case as Connie mentioned is unique and we did not ask for any approvals. We did ask if there were concerns that needed to be addressed that we would be happy to respond to them and so that's where it sits. So it's sort of a hybrid. We've provided as much information that we thought would normally be provided in a full rate case, but not in the form of witness testimony with a few exceptions, but all of the numbers and schedules that would normally be filed in a full rate case were filed. And so, but the unusual part of it is that we were not seeking any rate relief.

I see. Okay. Great. And then, just last, Jim, can you go over again -- I'm sorry -- the rationale for extending the forward equity deal to December 15 and just how we should think about when you expect to draw down from that?

It's Jim. Thank you, David. So the rational was that we were virtually at the end of the year, the utility requirements this year are going to be lower by about $20 million to $40 million in equity contribution. Contract as initially entered into in March of 2013 would have expired in March of 2015 given that our equity contributions normally are seasonal in the fourth quarter, it doesn’t have to be that way, but that's been our custom is we wanted to extend the contract through the time of our next quarterly infusion after December of 2014. We are also at the point in the year where we do our forecasting. We take a look at the utility's capital CapEx and capital requirements and size up their rate case ratios to maintain those at the end of every year. So at 4.7 shares yet to be settled, so that it will generate a little more than $100 million, we estimate that we would use that in the course of next year and in fact by next December. So the extension on the contract is really a nine month extension through the end of 2015.

Got it. Okay. Thank you.

Sure.

Okay. Ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back to Cliff for closing remarks.

Thanks Kim. Thank you to all participants on the call. As usual if there are any follow-up questions, please forward them to my office. Have a great day.