Good afternoon. Welcome to the First Quarter Hawaiian Electric Industries Inc. Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Cliff Chen, Treasurer and Manager of Investor Relations. Please go ahead.

Thank you, Phil and welcome everyone to Hawaiian Electric Industries' first quarter 2017 earnings conference call. Joining me this morning are Connie Lau, HEI President and Chief Executive Officer and Chairman of the Boards of Hawaiian Electric Company and American Savings Bank; Greg Hazelton, HEI Executive Vice President and Chief Financial Officer; Alan Oshima, 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. Connie, will provide an overview, followed by Greg, who will update you on Hawaii's economy, our results for the fourth quarter and our outlook for the remainder of the year. Then 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 refer to the cautionary note regarding the forward-looking statements disclosure accompanying the webcast slides which provide 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. Both our operating company Hawaiian Electric and American Savings Bank delivered the first quarter financial results in line with our full year expectations and the guidance we provided last quarter. At the utility, we continue to be leaders in the transformation to clean energy and are making significant grid upgrades to become more renewable ready and to increase resilience and reliability. As of the first quarter 2017, we achieved an energy portfolio powered by over 26% renewable resources and are expected to exceed the 2020 RPF goal of 30%. At the Bank, we're off to a strong start and had excellent deposit growth increased net interest income and higher net interest margin along with improved operating efficiency. Turning to recent utility development, we are waiting the PUC's decision on our Power Supply Improvement Plans which outlined a detailed 5 year plan charting the near term actions that will provide a foundation to meet 100% renewable goal by 2045. On April 24 Hawaii Electric Light and the consumer advocate filed a stipulated procedural schedule in the Hawaii Electric Light 2016 Test Year Rate Case subject to PUC approval. This includes an evidentiary hearing at the end of July 2017. On April 28, the consumer advocate filed its statement of position and an interim decision is expected in August 2017. In other developments, in April 2017 Hawaiian Electric completed negotiations for the third of 3 utility scale solar facilities on Oahu with NRG Energy which acquired the projects following the bankruptcy of the prior developers last year. The 3 power purchase agreements are subject are subject to PUC approval. The facilities are targeted to come online in 2019 and would get us 3% points closer to our 100% renewable goal on Oahu and that pricing…

Thanks Connie. Hawaii's tourism industry a significant driver of Hawaii's economy continues to grow setting records in both visitor spending and arrivals for the first quarter of the year. Visitor expenditures increased 10.4% and arrivals increased 3.1% compared to the same period last year. The state's 2.7% unemployment rate in March 2017 was lower than the prior year's rate of 3.1% and the national rate of 4.5% in March 2017. Hawaii's real estate market continued to show strength in 2017 is medium sale prices for single family residential homes, and condominiums on Oahu increased 3.5% and 2.6% respectively over the first quarter of 2016. The median sales price for single family homes on Oahu in March was $752,000 up 3.7% from last year. According to the University of Hawaii Economic Research Organizations report dated May 2017. Hawaii's economic outlook remains favorable for continued growth. Although it may be less rapid pace than in recent years, and although construction still remains very active it is begun to taper. As shown on Slide 5, first quarter 2017 GAAP earnings per share was 31 cents compared to 30 cents per share in the first quarter of 2016. Excluding the merger and related LNG contract termination cost, first quarter 2016 core EPS was 33 cents with Q1 consolidated core net income $1 million lower than the prior year. As shown on Slide 6, HEI's GAAP consolidated ROE to the last 12 months was 12.5% primarily due to the merger termination fee. Excluding merger related transaction adjustments HEI's core consolidated ROE was 9.4% with ROE contributions of 7.8% from the utility and 10.4% from the bank. On Slide 7, core utility earnings were $21.5 million in the first quarter of 2017 compared to $26.7 million in the first quarter of 2016. The most significant net…

[Operator Instructions] The first question comes from Christopher Turnure from JP Morgan. Please go ahead.

Good morning. Can you give us some color on the situation with the commission who was not approved for his seat? Just kind of what might have went on in the background there and why you think that might have happened? And then remind us whether the commissioner can make decisions with only two members or not?

Yes, this is Alan Oshima. I'll start with the last part of the question. Yes, the commissioner can make decisions with two commissioners. I will not speculate as to why the confirmation did not proceed, I know that there was a lot of discussion about it throughout the session and I just can't speculate why certain members voted against and others voted for.

Okay. And then in your opinion do you think that this would impact the timing of the interim rate decision you and – is there anything else that we might be missing there that would impact that at all?

We have seen no indication that it would as I said the commission can operate with two signatories, two commissioners. And over the year, two years [indiscernible] has increased staffing at the commission to be able to be more responsive to the large number of applications that have been filed. So we don't see any indication that things would slow down not withstanding right now not knowing who the interim appointment maybe.

Okay. And then Greg you, I think kind of referenced this in your prepared remarks but the impact of the interim decision and kind of parameters that feed into that rate increase versus the final; and maybe you go over those again and just kind of walk us through how those two would differ from a perspective of what you're recording in earnings, besides obviously your opinion of what would happen versus what you're requesting?

So we haven't had an internal decision. I think you maybe referring to my discussion of the decoupling order which is relative to the decoupling mechanisms which generally seem to be constructive removing field cost from base rates and putting them through the energy, the ECAC [ph] mechanism that we have which is a very timely update for fuel adjustment. And the mechanism allows for true-up of our generation related cost that are contributed to the calculation of the ECAC [ph] as appropriate. And the mechanism also allowing for recovery of capital expenditures between rate cases in a specific mechanism that would be moved out of the RAM calculation, specifically which as you recall the RAM has a cap on it; so we view that as a constructive order relative to the decoupling mechanisms.

Okay. Now if we just look at the rate cases that are filed right now, the full rate cases and we find out what is going to actually flow into your bottom-line, kind of mid-year or late this year; when the interim rates are effective for that. How can we think about the components of that stepping of earnings versus what would actually be in the final order? I mean are there things that are not eligible for -- being put into interim rates that are eligible for the final rates for example?

No. Hi, this is Connie. Whatever is in the interim rates, the standard on what can be included or not doesn't depend on whether it's an interim or it's a final, but the difference between an interim or a final is that the interim can be granted on a probable entitlement basis; and so what you will see coming in throughout this year is in August we might expect an interim decision from the commission, that could give us some interim rate assuming that there is probable entitlement, and that would be for Hawaiian Electric Light, which of course as you know is one of the smaller utilities on the big island. And then for our large utility on Oahu, that interim would be expected very late in the year in the December timeframe.

Okay, that's kind of what I expected. In the past, the practice of the commission has been to grant you pretty -- I guess healthy confirmed step versus your overall rate and I'm assuming you would book a rate there at the interim level that is your -- whatever you've been granted in the interim rate opposed to your estimate of what the final outcome would be because it's all eligible to be trued up in the end?

Yes, that's correct. If we receive an interim increase, we would start looking at that interim rate. As you know, it's been quite a while since we've had a rate case or an interim decision, so this is a new commission.

Perfect, thank you.

Our next question comes from Charles Fishman from Morningstar. Please go ahead.

Thank you. Greg, just [indiscernible]. I mean, I'm going back to your prepared comments; you have roughly 200 basis points of lag, and if I understood you correctly, what we're saying is the 160 basis points are structural and that implies -- that your target is to reduce that 160 basis points through this process as much as you can; you'll probably already -- always have 40 basis points just because of the expenses that can't get allocated or whatever, charitable deductions, things like that or charitable contributions, rather things like that. Is that the correct way to look at that in your comments?

Yes. We used a little bit different terminology, we considered the structural as those items that are unlikely to be recovered and haven't traditionally been recovered in a rate case process, the disallowance is a charitable contributions and advertising costs for instance, so we consider those as structural items.

And that's 40 basis points?

Yes. In aggregate for 2016 we reconcile that as 50 basis points of structural items, meaning that a real opportunity for ROE is had we fully performed, had we not had other lag items, would have been a 9.3%. So that was our opportunity. And then the items -- the other items we expect to address during the rate case such as increased O&M and plant additions that were above the ramp cap. I did mention the pension contributions that we've had to make that -- our pension -- net periodic pension costs are set in a rate case six years ago; and consequently we're under-collecting for those in this interest rate environment and we've had to make contributions [ph] externally, so that's been invested capital into an external trust which were not earning a return on; and that should also be addressed through this rate case. And that in total we had estimated for -- as we reconcile 2016, about 160 basis points of ROE lag that can't be addressed through the rate case. In 2016 we had some benefits on the other side as well, we had interest rate savings on debt that was refinanced at lower interest costs, so we had some offsets which will also be addressed during the rate case.

But the goal -- okay, the goal then is to -- management's target, your target would be to get to a 9.3% consolidated utility ROE by whenever?

Yes, that would be the -- again, that's predicated on a couple of things. The allowed ROE will also be addressed in the rate case. So we're currently at 10% which is a weighted average across the three utilities. So -- I'm sorry, we're at 9.8% across the three utilities on a weighted average basis; that will be reevaluated as part of the cost of capital process in the general rate case. So that will establish the cap, you know, the allowed; and then you have -- deduct the structural items which are the disallowances and that will set our opportunity to earn. The other elements there assuming that we get a full recovery of our revenue requirements through the general rate cases, we would have the ability to earn upto that. So for 2016 that would have been 9.3%. In any event we anticipate through the rate case process, getting closer to or allowed ROE.

Okay. Thanks for going over that again, Greg.

Okay.

That's really all I had. Thank you.

Great, thank you.

[Operator Instructions] Our next question comes from David Frank of Corso Capital Management. Please go ahead.

Good morning. Question, I think you just answered it but could you tell me what the earned ROE range is assumed in your utility guidance for this year of 1.17 to 1.27? Is it -- did I guess it's around 7.6%?

Well, we haven't actually provided specific guidance on that; you could back into it using our EPS for the use but we haven't -- we are -- we did report our -- for the first quarter at 7.8% and the one thing affecting our actual ROE for 2017 is the impact of the RAM revenue recognition issue which will continue on into next quarter as well. And I think we've provided some detail on that in the supplemental slides and for the annual impact; so we anticipated that the RAM mechanism adjustment this year would result in a loss of -- on a pretax basis of $25 million in revenues, that's a net number and that's shown on slide 22 in our appendix slides and that would be $14 million after-tax, nearly $0.14 EPS. So that will impact our achieved ROE for 2017 which we expect would be in the 7% to mid 7% range.

I might also call your attention to slide 23 which we had put together to be helpful in understanding when interim rate increases might come in relative to when RAM mechanism would operate.

Great. And just a quick question on that sort of 50 basis points of earnings -- under earnings due to charitable contributions and other items; I mean -- maybe I misunderstood this, that's very charitable of you but is there a scenario upon which you don't -- are not required to spend that non-deductible money and could actually boost your ROE by 50 bps if you so choose to?

That's correct but those are discretionary contributions on our part just as they are for most corporations. We believe that it's very important for us to take a leadership role, not only in our business community but across our communities, and in Hawaii where we are island community, so it's quite important that all businesses support the community.

Great, thank you very much.

Our next question comes from Jackie Boland from KBW. Please go ahead.

This is actually Shalice [ph] on for Jackie. I just have a couple of questions for Rich. Was that mortgage banking income driven by a seasonal slowdown or were there MSR market impacting the line item?

No, the decline was mostly contraction -- the decline year-over-year is mostly margin rates on the gain on sale, so volume was about the same on the sales and mortgages. The decline sequentially was principally from sort of seasonal decline in the market and the refinances really shrinking based on rates ticking up.

Okay. And you agree deposit growth in the quarter -- were there any key drivers for this?

Just great execution by our team.

Okay, that's fair.

Yes, it's been something we've been focused on for quite a while and I think you've seen pretty sustained good performance on that and it's accelerated recently. That gave us the chance as Greg mentioned to bump things into the investment portfolio with really good timing last quarter, so we've got nice rates on what we were able to add to the portfolio, so that's going to help NIMs as we go through the year.

Okay. And then with that are you seeing any pressure with the March rate increase on deposit costs at all in the -- just from your customers?

So far we're good. I think you see that most of our growth has been in core deposits, the vast majority of core deposits and operating fund; so far so good.

Okay. And then just last quick one, the premium amortization changes between 4Q and 1Q drive any of the expansion in the security yields?

Yes, it was a big contributor. So we were up nine, quarter-over-quarter eight of it was NIM, we got about three of improvement in the rate on the portfolio between investments and loans. And then that was offset by some difference in the unusuals and loan fees and stuff between the quarter. So a big help; and that's the wild card in future quarters as where those -- where the rates are and what happens to the as many line.

Okay, great. That's all I have. Thank you.

Okay.

[Operator Instructions] Okay, this concludes our question-and-answer session. I would like to turn the conference back over to Cliff Chen for any closing remarks.

Thank you, Phil. And we thank every participant on the call and [indiscernible].