Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2013 Hawaiian Electric Industries, Inc. Earnings Conference Call. My name is Celia, and I will 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, Ms. Shelee Kimura, Manager, Investor Relations and Strategic Planning. Please proceed.

Thank you, Celia, and welcome everyone to Hawaiian Electric Industries' 2013 year-end 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 and Chief Financial Officer; 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. Connie will provide an overview of the year and an update on our strategies. Jim will then update you on Hawaii's economy, our results for the year and will provide 2014 earnings guidance. 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 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.

Thanks, Shelee, and aloha to everyone. 2013 was a dynamic and challenging year for Hawaiian Electric Industries. At our Bank, robust loan growth and improving credit quality helped us to manage through the challenges of continued low interest rate, a slowing market for mortgage refinancing and new regulatory limits on debit interchange fees. At our Utility, we integrated renewable and customer-sited generation at levels unprecedented in the industry. These high levels of distributed renewable create many new and dynamic challenges. We are collaborating closely with our stakeholders and our regulators on possible technical, business and regulatory solutions which can allow us to continue this precedent in setting renewable integration. Together, we are making Hawaii an industry leader on many fronts. As we make the transition to renewable which in Hawaii can provide energy at a lower cost than our oil-based generation, our customers unfortunately continue to be burdened with the impact of high bills from high oil prices in the Asia-Pacific region. Thus, we have scrutinized expenditures and carefully reprioritized them to limit bill increases for our customers while still moving our state towards a clean energy future and delivering on our main franchise obligation, to provide safe, affordable, reliable and clean electricity for our customers. Financially, our 2013 earnings were consistent with our expectations and guidance and we were pleased to be able to deliver a consolidated ROE of 9.7% for investors. As shown on Slide 3, earnings of $1.62 per share in 2013 were down $0.06 from $1.68 per share on a core earnings basis but consistent with our guidance. The decline from 2012 was due to slightly lower earnings at both operating companies and share dilution resulting from our equity investments into our electric utility. On a GAAP basis, 2013 EPS was higher because 2012 included a…

Thanks Connie. I'll start by briefly commenting on factors driving Hawaii's economy. Hawaii's tourism industry set a new record in 2013 in visitor arrivals, were up 2.6% over 2012 to 8.2 million arrivals. Compared to 2012, visitor arrivals grew 2%, expenditures grew 2% to $14.5 billion in 2013. Seasonally adjusted state-wide unemployment is relatively stable at 4.5%, with Honolulu at 3.8% in December 2013, lower than the state's 5.1% rate in December 2012 and the national unemployment rate of 6.7%. Hawaii's real estate activity, as indicated by the home resale market, was strong in 2013. The median sales price for single-family residential homes on Oahu increased 4.8% and the number of closed sales increased 4.6% over 2012. Additionally, 2013 Hawaii residential building permits increased 22% over 2012. Overall, we expect continuing growth in Hawaii's economy in 2014 supported by continued recovery in the construction industry and steady but slower growth in the visitor industry. On Slide 10, core Utility earnings were $122.9 million in 2013 compared to $123.7 million in 2012. EPS of $1.23 was generally consistent with the high end of our guidance range of $1.18 to $1.22, in part due to strong expense management and in part due to less common stock issued by HEI than we had originally planned. In 2013, on an after-tax basis, the most significant year-over-year net income drivers were, $11 million higher recovery of additional infrastructure investments and operating costs, $4 million in lower earnings and the final decision in the Maui 2012 case, and $2 million lower earnings from the fuel efficiency performance of our generating units. Higher net revenues were more than offset by higher depreciation, lower AFUDC and higher O&M expense. O&M expense was $2 million or 0.9% higher compared to last year and less than inflationary levels. Cost efficiencies…

Thanks Jim. In summary, our Utility is at the forefront of the industry in integrating renewable and distributed generation. Together with our regulators, policymakers and other stakeholders, we are making Hawaii a leader in clean energy. As we continue the transition to a clean energy future, our Utility continues to be focused on affordable cost and excellent service for all of our customers. Our Bank continues to be a solid performer and will continue to focus on its core banking business targeting mid-single digit loan growth, strong credit quality and above average peer return. Overall, HEI's unique business model continues to provide our Company with the financial resources to invest in the strategic growth of our Company while supporting the continued stability of our dividend which we have paid for over 100 consecutive years. Last week we announced that our Board maintained the quarterly dividend of $0.31 per share. Our dividend yield continues to be attractive at 4.7% as of Friday close. And with that, we look forward to hearing your questions.

(Operator Instructions) Your first question comes from the line of Charles Fishman, Morningstar. Please proceed.

I just want to make sure I understand on Slide 14, as I look at the CapEx forecast that is pretty much – it looks very similar, equivalent if you will, to the maintenance CapEx on this graph that you used previously – or your previous CapEx forecast. Was that – I mean basically you have eliminated the major initiatives from your forecast, is that correct?

Charles, this is Tayne. Let me comment on your question there. So what we did was we reprioritized the CapEx to something that's more targeted to help us address customer bills. The maintenance CapEx for these years is roughly $250 million to $300 million, and that's through a reprioritization process. As Jim mentioned in his remarks, we also are not assuming the same amount or kind of Utility-owned generation and our plan now includes the military-sited generation for energy security. The other important point there for 2014 with our – there's a delay in our ERP project which basically moved out the CapEx for 2014, out a year.

Okay, so if I look at the – previously you were talking $350 million for 2014 maintenance CapEx, that's actually now been reduced to between $250 million to $300 million?

That's correct.

Okay, but you're still talking an 8% to 9% rate base growth?

That's right.

And you're eliminating some of the old diesel plants which I assume just had some very low bases, was that why it really didn't had much of an impact on your rate base growth?

That's correct.

Okay. And then my second question is, you mentioned a windfarm that was part of a power purchase agreement. What island was that on?

That was on the Island of Oahu.

Okay. Now in shifting to Maui where last year you had some issues with respect to renewable utilization, is that pretty much in the rear-view mirror that that's a non-issue going forward?

Well, we continue to work on it and I think as we've disclosed previously, we now are accepting up to 94% of the power from all of the windfarms that are on Maui.

Okay, so surely that – I would think that would meet the commission's expectations at this point, correct?

We would hope so but there are many people in Hawaii who want to add additional renewable generation, and so that's the reason why we are continuing to work so hard with the industry here and the renewable developers and look at all kinds of technology that can allow us to integrate more renewables going forward. [Indiscernible] and we need to keep moving forward on that front.

Okay, thank you.

Next question comes from the line of Paul Patterson, Glenrock Associates. Please proceed.

Just to follow up on Charles' question, sorry, I didn't really understand the answer it’s a rate base growth. I mean looking at the really major reduction in CapEx, yet rate base is growing, and I missed exactly why rate base is growing as much if you had such a big reduction in CapEx.

This is Tayne. A large part of our CapEx reduction has been in the bigger projects, so we do have the maintenance CapEx, the smaller type projects, which tend to close out quicker. So it's really a different mix of projects in the total CapEx plan.

So these other projects, so I guess a portion of the proportion of the CapEx wasn't really expected to be in rate base prior, is that right, and now it is, is that how we should think about it? I mean could you just clarify that?

So for example, where we had some facilities projects that were expected to spend in 2014 and 2015, those are being delayed and moved out, and so they really didn't have much impact on the rate base growth because those projects have sort of longer lead times to completing. So Paul, a lot of it has to do with the timing of completion of those multiyear projects.

Okay, but it does I guess – but it would impact under the RAM though some of your – I mean - how should we think about the financial impact of less CapEx, both in terms of earnings and also in terms of the equity forward that you guys have out there?

So Paul, it doesn't affect the really near-term years but it does affect the longer-term out years, and so one of the other things that we'll do as we have in the past is to manage the equity requirements to support the CapEx programs and that will include the use of the equity forward which as you know gives us better flexibility with respect to timing on when we can draw down that forward. For example, as Jim commented, we drew less at the very end of the year, I think it was $32 million, Jim?

Correct.

Against the roughly $172 million net proceeds that were available on that equity forward.

And you're expecting $45 million this year, is that right?

That's right, Paul, either through the DRIP or the forward in combination.

And Paul, I'll just add, our DRIP now is bringing in about $48 million a year roughly.

Okay. And then with respect to the deferred tax issue that the commission ruled on in Schedule A, what was the impact of that?

There was no impact because it's something that needs to be further discussed in Schedule B.

Okay, what would the impact be if in fact if that wasn't around for 2014 or how should we think about the potential financial impact of that?

Paul, it's Jim. The commission really ordered that the Company evaluate its accounting treatment for that and file with the service within 120 days. So we are evaluating those options. Now it's really too soon to be able to predict what the specific financial impact, if any, would be on this.

Okay, now I've asked a lot of questions, so just finally, the fact that there's been again we see this desire [it appears] [ph] voice through these orders for an increased level of risk or skin in the game or performance-based, could that potentially change the CapEx. I mean if there is a substantial change in RAM or more perception of the need for putting the Company more at risk or what have you, could that potentially change the capital expenditures or should we assume – is the capital expense that you guys are currently forecasting based on really no significant change in RAM so far, what's the difference of that?

No, I think as Tayne indicated, we have scrutinized our CapEx budget and have reflected that in the slide that is in this presentation, but as to your base question, the answer is, no, it won't change our capital plans in the sense that we always need to look at what we need to stand in order to ensure that we can provide reliable, affordable, clean electricity for our customers and it's very important to everyone here in Hawaii to continue to move towards clean energy. So we are continuing to keep that in mind as we plan the capital expenditures going forward.

Okay, thanks so much.

The next question comes from the line of [Joe Zhou] [ph], Avon Capital Advisors. Please proceed.

Just have a quick question on your equity needs. I see on Slide 23, you guided equity needs expected to be satisfied with existing equity forward and/or DRIP. So given the lower CapEx you guided, do you need all the equity you issued in forward or you just need a partial of it?

Joe, this is Jim. So far for this year coming, 2014, we're providing guidance only to that extent. So we'll re-evaluate it next year again. So what I'm prepared to tell you is that we need really about $45 million this year and we'll evaluate the right source at the right time for this particular need as we get closer to the end of the year. We have in the past episodically closed the DRIP for original issuance shares, so we have quite a lot of flexibility here with respect to doing that. And as you may know from watching others who have done the forward, there are possibilities to extend the maturity date of the forward. I'm not predicting that right now but I do say that we have flexibility in those programs to manage against the CapEx plan that the Utility has going forward, but this guidance is really relating to 2014 and only 2014.

Okay, thank you.

A question from the line of Michael Goldenberg, Luminus Management. Please proceed.

I want to understand this forward issue again, the equity part, so you sold $125 million but you haven't issued all of them. Are you saying that you're only going to do DRIP this year of $45 million and then nothing in the equity forward, just want to make sure if that's what you're saying?

Michael, this is Jim. So we have needs this year of estimated $45 million. We can satisfy those needs by drawing some from the equity forward and some from the DRIP, all from the equity forward or all from the DRIP. We have quite of bit of flexibility. So it's the amount that we want to leave you with that's $45 million and the way we satisfy that will be done in the most cost-effective way.

I'll probably add that the gross number was not $125 million, but it was $180 million.

I'm sorry, I apologize. And you did $50 million out of the $180 million?

We did $32 million out of the $180 million so far.

$32 million. So just with forward, what is the expiration date of the forward and what happens to the forward if it expires without being fully used, if any cost to the Company in that?

The maturity date of the forward is March of 2015 and then it could be net settled without settling on the shares on a cash basis. And of course there is an expense to doing so but we are preparing for longer-term capital expenditures and we are actually quite pleased that we did the forward that we did last year. So I expect to use the funds.

So if you don't use it and I assume if you don't use it through 2014 that leaves you with three months. What magnitude of cost are we talking about [indiscernible]?

There's a complicated calculation in the agreement which I'd be glad to explain to you probably off-line, but you're always paying the dividend on the shares in any event. So that's one cost that you do have even though you don't have the accounting dilution before settling the shares.

Got you.

(Operator Instructions) We do have a question from the line of Charles Fishman, Morningstar. Please proceed.

Thank you for the follow-up. Slide 13 on the decoupling review RBA portion, and it was – you're saying a $2 million to $3 million after-tax impact for 2014. I mean what happened here is when the decoupling was put in place, the short-term interest rates were much higher, 6%, and this is just taking a look at them again and the impact of bringing those carrying costs down a little will impact you to about $2 million to $3 million because your borrowing costs were actually much lower than the 6%?

Yes, although the 6% was not chosen relative to short-term interest rates at the time. It was just a fixed rate that was chosen which was the rate that we pay on customer deposits.

Okay.

It just happened to be chosen and the commission came back and said, really we should be looking at a short-term borrowing rate and let's go back and grab the rates from the last rate case.

Okay, so this is part of core Utility earnings, so the $2 million to $3 million after-tax impact, or at least nine months of it, is in your – excuse me, it is 10 months of it, is in your guidance for 2014, correct?

Yes, that's correct, 10 months of it.

Okay

A question from the line of David Paz, Wolfe Research. Please proceed.

Just a question, what are your requested revenue adjustments under the decoupling mechanisms effective this June?

We have not yet filed for those, we'll be filing at the end of March.

Okay, but just the way you think about this, should we think since 2014 CapEx is reduced by $140 million and is similar to the amount of CapEx in 2013, that would be in the ballpark of the adjustments requested last June?

David, this is Tayne. I think that's the right way to think about it. If you look at our CapEx spending in 2013, we guided roughly to $350 million range and if you look at our CapEx for 2014 of $360 million, pretty consistent there.

Okay, great. And then just a model question, what should we – what do you use as a depreciation forecast when you factor in –when you did the 9% rate base growth?

As Tayne said, I mean generally depreciation of course is high class item. So I think we have depreciation schedule that has different depreciation lives for the different items.

And which you can also do, if you look at our step supplement, you can see why depreciation expense typically runs in the 3% to 4% range. So you can look at historical information for guidance there.

Thank you.

We have a follow-up question from the line of Paul Patterson, Glenrock Associates. Please proceed.

About the deferred tax issue, I mean my understand is, you guys don't expect it to actually impact 2014 but it may impact depending on what they decide to do in 2015, do I understand that right?

I don't think that's quite the interpretation. What Jim was trying to explain earlier is that the deferred tax issue really is on the timing of the recognition of revenue or taxable income for tax purposes. And so the taxes on that taxable income are going to be paid regardless of the timing, so it's just a matter of the timing of when those taxes are paid and thus the interest carry on those taxes for purposes of the RAM. And so that's why Jim was indicating that first of all we've got to go in and work with the IRS to determine whether we can make that accounting change for tax purposes and then it's really just that interest on the timing of the tax payment.

Okay, so I mean can you give us any flavor as to what that potential impact would be, I guess? I mean it doesn't sound that large, am I understanding it correct?

I would say that it should not be materials and it is largely a timing related matter.

Okay, good. I got you. So then in terms of the efforts you guys are making in terms of keeping customer rates down and what have you, I was wondering the CapEx like you mentioned obviously there's some timing issues, that are some category issues, how should we think about what customer rates given those efforts and also your renewable, the cost of renewable restructuring and cost efforts are making on that, how should we think about those benefiting customers, how much rates are going to be benefited by all these aggressive actions you've been taking to keep rates under control, can you qualify that at all, if you follow what I'm saying?

Yes, the long-term impact is that what we've been trying to do and this haven't changed is that there may be modest increases in our portion of the bill but if we can continue to integrate renewables that have a lower cost than our current cost of oil based generation, then we can bring down the top part of the bill which relates to the field pass-through which is more than half of the bill, and that that should net-net be a better trade-off for customers because net-net that would result in bills being kept under control and possibly even decreasing. And certainly if we can bring in something like LNG, that could come in at 30% to 40% lower for that field portion, that would be a significant help as would those waiver projects that I talked about that have an average cost that is a quarter to a third less than our current oil-based generation. So we are very pleased that the commission has allowed us to proceed with the first three of the nine to negotiate PPA.

A follow-up and final question from the line of [Joe Zhou] [ph], Avon Capital Advisors. Please proceed.

I have a follow-on question on [indiscernible] equity needs, I understand that you need $45 million of equity, would you mind to elaborate that on the timing of issuance? I mean I just want to know what share count should I assume for [indiscernible]?

Actually, Joe, for that as Jim indicated, the $45 million could be satisfied either through the dividend reinvestment program which brings in about $48 million a year and would be sufficient and/or we could draw on the equity forward. With respect to the equity forward, those shares actually have already been sold at the time that the forward was first put in place last year and they would only increase share count when we actually draw down. Jim also indicated that with respect to the DRIP, we have the flexibility and we have periodically done what we call turn-off the DRIP and stop the issuance of original issue shares. And so we haven't yet made a decision as to how we are going to fund the current 2014 equity requirements which we normally would do at year end, but we certainly have sufficient sources to fund it.

And Joe, I'm glad that you followed up because I want to emphasize something I said in the prepared remarks but I didn't quite clarify for Michael Goldenberg, between the estimated proceeds for the DRIP and the existing equity forward, we should be able to satisfy all of our equity needs between 2014 and 2016. So, if you will, we'll go soft during this period. And you probably recall that there's a 7 million share count associated with the equity forward that doesn't tell you when to calculate those into your share count because I haven't told you whether I'm going to use the forward and/or the DRIP but you would know that $45 million at roughly the present share price would constitute about a 2% dilution per year, right. So couple of points. About 2% dilution a year from the DRIP and that will be able to satisfy all of our equity needs for 2014, 2015 and 2016 by using those two sources and we'll just determine at the appropriate time, at any time, which of those two sources to use.

And Joe, just to add in, the $32 million draw on the forward that we mentioned that we did this past December was equivalent to 1.3 million of the 7 million shares.

Okay, I mean can you give me a share – like average share count number for 2014, is it possible to give me a range?

Yes, I do believe it's fair to assume about 103 million shares at the end of the 2014 frame, maybe a little less than that.

Okay.

It should be about 2% to 2.5% dilution of the 100 million shares that we have outstanding today. So, it's going to be in that 102 million to 103 million range. So does that help you?

Yes, if you don't mind, the last follow-up, if you can give CapEx number, are you over – like your equity ratio like too high where it is?

Not if you consider the three-year period that we are talking about, right. So you'll have a $1.1 billion in CapEx give or take for this three-year period of time, rate base will grow from about $2.5 billion or $2.6 billion to about $3.3 billion, you can roughly assume depreciation of about $150 million to $160 million a year. So you can see that we'll need that much equity over that three-year period.

Okay, thank you very much.

Thank you. I'd like to turn the call back over to Ms. Shelee Kimura for closing comments.

Thank you for joining us today everyone. Feel free to give me a call after-hours if you have any other questions. Thanks.