Cliff Chen - Treasurer and Manager, IR and Strategic Planning Connie Lau - President and CEO and Chairman, Hawaiian Electric Company and American Savings Bank Greg Hazelton - EVP and CFO Alan Oshima - President and CEO, Hawaiian Electric Company Rich Wacker - President and CEO, American Savings Bank Tayne Sekimura - SVP and CFO, Hawaiian Electric Company.

Greg Gordon - Evercore ISI Chris Turnure - JP Morgan Charles Fishman - Morningstar Paul Patterson - Glenrock Associates.

Good day and welcome to the Q2 2017 Hawaiian Electric Industries, Inc. Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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. And welcome to HEI’s second 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 without limitation 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 companies, Hawaiian Electric and American Savings Bank delivered the second quarter financial results in line with our full year expectations and our 2017 annual EPS guidance.

At the bank, we continued our strong performance through the second quarter with higher returns from improving credit quality, higher yields and greater efficiency.

Our balance sheet continued to grow with our deposit growth, although lending was flat as our growth in consumer, home equity, residential and commercial real estate lending was offset by lower commercial lending.

At the utility, as we have previously disclosed, our 2017 results are impacted by the expiration of the 2013 settlement agreement with the Hawaii Public Utilities Commission that previously allowed Hawaiian Electric to record rate adjustment mechanism or RAM revenue on a calendar year basis for the years 2014, 2015 and 2016.

RAM revenue now has been recorded on a May 31, fiscal year basis, concurrent with cash collection. Overall, 2017 is a transitional year at the utility.

After six years without rate cases and post-merger termination, we are returning to the mandatory triennial rate case cycle under our state’s decoupling framework where one of each of our three utilities is in a rate case test year each year as well as working with our commission and all stakeholders in our state on Hawaii’s move to a clean energy economy.

Turning to slide two. Our transition is progressing well. With respect to our rate case filings, we settled with Consumer Advocate in July on all issues in the Hawaii Electric Light 2016 test year rate case, other than the allowed ROE.

We agreed to a maximum allowed ROE of 9.75% with the possibility of up to a 25 basis-point reduction to be determined by the PUC. We expect an interim decision in order by August 21.

On July 28, the PUC issued the Hawaiian Electric 2017 test year rate case procedural schedule with settlement discussions scheduled for the end of October and an interim decision tentatively scheduled for December 15th.

And on June 9, Maui Electric filed a notice of intent to apply for a general rate increase for a 2018 test year on or after August 17 but no later than December 30, 2017.

The PUC also recently approved a new recovery mechanism for Major Projects Interim Recovery or MPIR which provides cost recovery or projects placed in service between general rate cases under circumstances in which cost recovery net of related benefit is limited by the RAM cap.

In addition, performance based rate making moved forward in our jurisdiction with three performance incentive mechanisms approved, two of them on reliability with potential penalties only and the third on customer service, both as an incentive and a penalty.

With respect to planning, in July, the Public Utilities Commission accepted our Power Supply Improvement Plan, which provides a framework to meet to Hawaii’s 100% renewable energy by 2045 goal. The PUC’s acceptance of our plan allows us to move ahead with greater certainty on our near-term initiatives.

And we will file -- or have filed for approval of specific projects in separate dockets. One such project is the 20 megawatt solar facility at the West Loch Annex at Joint Base Pearl Harbor-Hickam.

In June, the PUC approved Hawaiian Electric’s request to build the facility at 956 cents per kilowatt hour or lower, which will be Hawaii’s lowest cost solar plant. This project will get us a 0.5% point closer to our 100% renewable goal on Oahu.

And in July, the PUC approved the power purchase agreement for three utility scale solar facilities on Oahu with NRG Energy, totaling nearly 110 megawatt at a weighted average price of 10.8 cents per kilowatt hour including tax credits.

The facilities are targeted to come online no later than the end of 2019 and would get us three percentage points closer to our 100% renewable goal on Oahu. The Power Supply Improvement Plan is intended to remain flexible as technologies and circumstances change.

For example, on another renewable purchased, the PUC recently approved the revised purchase power agreement that was filed for the 21.5 megawatt Hu Honua biomass facility on the island of Hawaii.

The plant was not included in our Power Supply Improvement Plan but is expect to add 11 percentage points to Hawaii island’s renewable portfolio standard over 2016 levels to 65% renewable for the island. The Hu Honua plant will provide both capacity and energy to Hawaii Electric Light at a levelized cost of 22.1 cents per kilowatt hour.

In July the PUC denied Hawaii Electric Light’s request to buyout the 60 megawatt naphtha burning Hamakua Energy Partners generating plant, on grounds that customer benefits were not sufficiently demonstrated to justify the purchase. The plant will continue to operate under their existing power purchase agreement, which expires in 2030.

Importantly, our Power Supply Improvement Plan initiatives include net grid scale renewable energy procurement -- I'm sorry, not only grid scale renewable energy procurement but also initiatives for community-based renewable energy, demand response, and distributed energy resources and grid improvements.

The Hawaii Public Utilities Commission has asked us to file by March 2018, a report that details the utility planning approach and schedule for the next round of integrated planning. We're also in the final stages of finalizing a grid modernization strategy.

It describes the scope and cost to modernize the energy network on the five islands we serve and describes how new technology will help triple private rooftop solar, consistent with the Power Supply Improvement Plan and to make use of rapidly evolving solutions including storage and advanced inverters.

The first segment of the modernization is estimated at about $205 million over six years. The utility will continue get feedback from customers and stakeholders as they refine their strategy for the final filing on August 29. It is important to note that all our planning now includes significant stakeholder engagement and input.

In other regulatory developments, the generators for the 50 megawatt Schofield Barracks Generating Station have just been delivered and the project is on track to be operational in the second quarter of 2018.

The plant will run on a mixture of biofuels and conventional fuels and will serve all customers on Oahu, and in the event of an emergency, can be islanded to Army facilities. On May 19th, Governor Ige, appointed Jay Griffin as an interim commissioner to our three-member Hawaii Public Utilities Commission.

His appointment is subject to the Legislature’s conformation during a special session tentatively scheduled between August 28, 2017 to September 1 of this year.

Griffin is a researcher and faculty member at the Hawaii Natural Energy Institute at the University of Hawaii at Manoa and previously served Chief of Policy and Research under former PUC Chairwoman, Mina Morita. I will now ask Greg to cover Hawaii’s economy, our financial results and outlook for the company..

$1 million higher net interest income, driven mainly by higher loan portfolio yields and growth in our customer loan and investment portfolios; $1 million lower provision for loan losses; and $1 million higher noninterest income, mainly due to improved performance from our bank-owned life insurance investments.

These increases were offset by $2 million after-tax higher noninterest expense, primarily due to higher compensation and benefit costs. Turning to slide 11. American continued to deliver strong and consistent performance in the second quarter. We achieved a return on assets of 102 basis points for the quarter, above our target of 90 basis points.

Our net interest margin was 3.68%, higher than our guidance range due to higher investment portfolio yields and growth of our higher yielding consumer and real estate portfolios. Overall, the bank continues to maintain robust deposit growth, strong capital levels and straight forward community banking business model.

On slide 12, examining the drivers of our 3.68% net interest margin, which include our interest earning asset yield which was unchanged from the linked quarter and our liability cost of 21 basis points, which increased by 1 basis-point due to higher rates on certificates of deposit.

On slide 13, total loans as of the quarter end was flat to the prior quarter but included growth in home equity line of credit and consumer loan portfolios. We continue to focus on strengthening the asset quality of our commercial loan portfolio, which tampered the overall growth in total loans.

Our deposit growth was consistently strong at 6.3% annualized year-to-date. Low cost deposits have funded increases in our investment portfolio, and higher yields on our loans have contributed to overall higher net interest income of $1.1 million pre-tax compared to the linked quarter.

Non-interest income of $16.2 million compared to $15.1 million in the linked quarter, primarily driven by performance on bank-owned life insurance investments. We’ve continued to see improving credit quality, as a result of prudent risk management capabilities and the healthy local economy.

As we have said previously, our residential portfolio remains very clean; consumer unsecured credit quality is in line with expectations for the year; and the commercial and real estate portfolios are stable with improving trends. Provision for loan losses was $1.1 million lower than the linked quarter, primarily due to improved credit quality.

Our net charge-off ratio was 21 basis points for the second quarter of 2017, 8 basis points lower than the linked or first quarter. Non-accrual loans as a percentage of total loans receivable held for investment was 0.44% compared to 0.41% at the end of the linked quarter.

The allowance for loan losses was 1.19% of outstanding loans at $56 million for the quarter and unchanged from the 1.19% at the end of the linked quarter and 1.16% as at the second quarter of the prior year. Slide 15 illustrates American’s continued attractive asset and funding mix relative to our peer banks.

America’s June 30, 2017 balance sheet is compared to the last complete available data set for our peers, which is as of March 31, 2017. 100% of our loan portfolio was funded with low cost core deposits versus an aggregate of our peer banks at 87%.

Year-to-date, total deposits increased by 175 million or 6.3% annualized while maintaining a very low cost of funds of 21 basis points, 28 basis points lower than the median for our peers.

In the second quarter of 2017, American paid $9.4 million in dividends to HEI and American remains well-capitalized at June 30 with a leverage ratio of 8.5%, tangible common equity to tangible assets ratio of 7.9% and total capital ratio of 13.7%. Turning to slide 16.

We are reducing our 2017 CapEx estimate to $420 million which now includes the Hamakua Energy Partners plant purchase due to the recent PUC denial of the asset purchase agreement; this is partially offset by adjusting for other additional capital expenditures for the remainder of the year. The revised rate base growth is now estimated to be 3% to 4%.

Our 2018 and 2019 CapEx estimates remain unchanged and will be updated as part of our normal update in the fourth quarter webcast, expected in February 2018. As a result of the utility reducing our 2017 CapEx estimate, the utility equity requirement from HEI has also been reduced to $30 million, as shown on the slide above.

As we've indicated in our fourth quarter 2016 earnings call, we do not expect any need for additional external equity including form our dividend reinvestment plan through 2018. We're reaffirming HEI’s 2017 earnings guidance range of $1.55 to $1.70 per share.

For the utility, we're now guiding towards the lower end of the utility EPS range due to several factors, the denial of the HEP purchase, Hawaiian Electric Light settlement agreement with the CA, a slight delay in the Hawaiian Electric 2017 test year interim decision, and year-to-date actual performance which was impacted by certain onetime expenses.

However, the utility is looking for opportunities for cost reductions to mitigate these items.

The bank however is expecting to be at the higher end of its guidance range with an ROA expected to be greater than the 90 basis points, based upon its year-to-date actual results and growing net interest income benefiting from higher yields and mid single digit earning asset growth and improved credit quality.

Overall, our HEI consolidated guidance range remains unchanged. Connie, back to you..

Thanks, Greg. In summary, our utility will continue expansion of our renewable energy portfolio and grid modernization efforts to increase our resilience, reliability and promoting sustainable communities while working towards achieving Hawaii's 100% renewable energy goal.

And, we're actively involved in discussions to encourage electrification within our state to help us achieve a broader clean energy vision for Hawaii. Our bank will continue to focus on deepening customer relationships to drive balance sheet and income growth.

On Tuesday, our Board maintained our quarterly dividend of $0.31 per share, continuing our uninterrupted dividend payment since 1901. The dividend yield continues to be attractive at 3.75%, as of yesterday's market close.

HEI, Hawaiian Electric and American Savings Bank will continue to move forward, providing long-term value for our customers, community, employees and shareholders. And now, we look forward to answering your questions..

[Operator Instructions] Our first question comes from Greg Gordon with Evercore ISI. Please go ahead..

As usual, you have a lot going on, irons in the fire on the regulatory front. So, a couple of questions there, just to synthesize what you said. The current CapEx forecast and the rate base forecast that results from that show you on page 16.

As we go through the course of the next 12 months of regulatory activity, what are the things that could change that could either increase or decrease the CapEx forecast? Some of the things that I noticed are you're asking for approval for more grid modernization spending but you have also got some other large projects pending approval.

So, if you could try to synthesize what the puts and takes might be over the 12 months for us that would be helpful..

Sure. Let me give you an overall comment and then I'll ask Tayne to give you more detail. Greg, if you remember, we had originally said that we were expecting, over this timeframe, roughly between $400 million to $500 million of capital expenditures, annually, as we moved through Hawaii's transformation to clean energy economy.

And so that’s really kind of the range that we continue to expect. And as you know, there is actually lots of projects that we have talked about. And so, in any particular given year, some projects may move in, some projects may move out, much as Greg commented about the HEP purchase, we were denied in making that.

But there are other capital expenditures that we're making to offset that denial. So, let me ask Tayne, at this moment, to comment a little bit further on that..

Thanks, Connie. Greg, the other things that we have in process in terms of major projects, really noted on that slide, we’ve got the Schofield Generating Station project along with Joint Base Pearl Harbor PV project, and then the third item we’re embarking on our enterprise resource planning software project there.

And those three projects all have been approved by the Public Utilities Commission and are slated to be completed in the 2018 timeframe. Adding on to what Connie said on the Power Supply Improvement Plan, which was accepted by the PUC, it provides a framework for initiatives and projects that we will be working on.

We do need to file PUC applications for those major projects. And some of the things we do anticipate coming up very shortly would be applications for batteries on all three companies, as well as some of the core T&D asset management strategies that go along with our Power Supply Improvement Plan.

I do want to note that our grid modernization expenditures, they do need to be incorporated within our budget, and we will be doing so and reprioritizing work. That new forecast will be coming out as part of our year-end 2017 year-end webcast expected for February of next year..

Okay. So, whatever develops on the Power Supply Improvement Plan front, in terms of projects that get into the queue there and the integration of grid modernization strategy expenditures, sort of things that might move into the plan, other things might move out.

But you’re sticking with your view that the range of spending would still be in the 4 to 5 -- was it $400 million to $500 million that you articulated?.

That’s correct, $400 million to $500 million. Yes. .

Okay. That’s helpful. .

Yes. And Greg, I would add, part of the other reason for that is when you look at the Power Supply Improvement Plan, today’s energy landscape now includes a lot of other players.

And so, just as I noted in our prepared remarks that we’re getting 109 megawatts from three NRG solar plants and also now an additional 21.5 megawatts from the Hu Honua biomass plant. A lot of the Power Supply Improvement Plan also covers third-party investments, not just the utilities..

Understood, understood. And when you talk about the earnings guidance ranges, you talk about being at that -- turning towards the high-end of the bank, having some near-term pressures at the utility. You also foot note that your holding company expenses should be between $0.13 and $0.15.

Are you sort of trying to tell us that you’re trending towards the low end of the utility guidance range at this point and that’s how we should think about things as we go into the end of the year?.

This is Greg, Greg. Based on where we’re at on a year-to-date basis -- we have mentioned some of the headwinds on the O&M side created by a number of onetime charges, so that put a slightly behind plan on a year-to-date basis.

As we look forward, the main driver I think overall of where we line up within the guidance range, will be the timing of the interim rate results and which is -- and that timing for interim rates on the Hawaiian Electric rate case, which is the major rate case, has now been determined, just very recently, tentatively as mid-December.

So, that will -- rate relief within 2017 will be helpful, although may not be fully what we expected when we -- the timing may not be fully what we expected when we originally set the guidance range.

I would say that we’re in internal discussions of finding ways to offset those increased costs, as well as the timing on the settlement of the rate case. So, more to come on that front, but I would say, the pressures that we’re seeing right now, put us slightly towards the lower end of the range..

Final question, you do give lots of good insight into earned returns here and you give a GAAP ROE for the 12 months trailing basis at the utilities overall and then for each subsidiary relative to your allowed.

And then, you also have a separate slide in the appendix where you show sort of what the structural regulatory lag looked like in 2016? Can you give us some sense of what your aspiration is for earned ROE as we exit 2017, get into 2018 and beyond, and we get past these ramp issues and these timing issues? Is there still an expectation that there’ll be sort of a structural regulatory lag that’s sort of pretty difficult to offset but we should expect some sort of an aspiration at a certain level? In the past, you’ve sort of given guidance around that front?.

Maybe a couple of comments here and then Tayne can contribute as well. First of all, our actuals for year-to-date was impacted by the denial of HEP, which cost -- it was an $85 million anticipated purchase, equitized at roughly 56%, which we anticipated to be around the timing of the first quarter in our original guidance.

So, you have that impact to this year, which impacted our ROE expectations. Secondly, the $14 million loss on the RAM on a actuals-to-actual basis all of which has been incurred now because of that one time transition.

$14 million over our equity invested into the utility will get you -- you can do the math on that; it's just $14 million net income, will get you somewhere around 70 to 75 basis-point reduction in what we've achieved year-to-date. So, you make adjustments for that for the current period.

Looking forward, the purpose of slide -- or the 2016 consolidated ROE lag, was to show, to demonstrate largely what the structural issues are that are embedded in our rate structure generally. And that 50, 60 basis-point lag, it tends to be structural and not something that's likely to be recoverable through the rate case cycle.

But as you look to the right on that slide, past the structural items, you see we've demonstrated, if in 2016 had we been able to recover a full cost of service and return on our investments, that would have made a 120 basis points differential.

I mean, that's the opportunity that we see as we go through our first rate case cycle in six years, true-up the coupling mechanisms and go through standard rate case cycle, that's the upside; that's the opportunity that we see to improve our performance through a full recovery of our cost -- of our allowed cost at or allowed rates..

Our next question comes from Chris Turnure with JP Morgan. Please go ahead..

I wanted to just clarify first on HELCO. The settlement is in regard to interim rates, not the entire case.

Is that correct?.

Yes. It is the entirety..

Okay.

And then, you did put some details on the slides there, but can you maybe highlight anything that is a little bit short of maybe what you had originally expected or anything there that differs from your base case expectation, assuming that your ask was pretty far off from that?.

Yes. I'm going to ask Alan Oshima who heads our utilities, to comment for you..

As with any settlement, there is puts and takes. And our original revenue requirement request was around $19 million, and the settlement would get anywhere 10 to $11 million in revenue adjustment. So, the individual line items, we can't get into; the settlement it is pending before the PUC. But is on far..

And that original request included and requested ROE at 10.6%. As I mentioned, this settlement is at 9.75 with the potential for a decrease of upto an additional 25 basis points, primarily related to decoupling..

And I would that in the Hawaii Electric Light rate case, with the Consumer Advocate, we have agreed to all of the issues in the proceeding with the exception of what Connie stated on ROE..

And then, sorry if I missed this, but can you remind me of the timing there and ultimate implementation date, kind of best guess scenario?.

The decision is expected on August 21. And so, then thereafter, I don’t know, maybe 30 days to implement the rates -- file the tariffs and begin the cash collection..

And then, transitioning to O&M expenses; you touched on things a bit in the last question. But, if I look at the test years of this case and your HECO case as well, I would think that the only test year that applies to 2017 at least, is for one of the cases.

So, is it possible that you could kind of be a little bit more disciplined on the O&M side here in the second half of the year or has something kind of been running ahead on plan on that front in particular year-to-date?.

What we’re doing is, as Greg mentioned, we’re taking a look at opportunities to mitigate some of the matters related to a delay, a possible delay in the Hawaiian Electric rate case, so there are some opportunities but we in the 2017 test year for Hawaiian Electric Company as well..

And is there a true-up for that, actually versus planned?.

No, not for the -- whatever the test year is, that is what is being adjudicated, and that is what would go into interim and then final base rates, and there is no adjustment for actually within that test year. Although, obviously the commission always takes a look at what actual results look like, but there is no mechanism for that actual true-up..

And that’s something [indiscernible]?.

Yes. And just to clarify, the HELCO case that we're settling where we expect the decision on August 21, was on the 2016 test year, and then it is, as you say, the largest utility is this year on 2017 test year..

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

If I go back to slide 22 in the appendix, and Greg, you talked about items four through eight.

Are any of those being pending in the current pending rate cases or any of those items included as far as providing some benefit?.

Yes. They all are being adjudicated as part of the rate case. The interest rate savings for lower cost debt that we issued is embedded into our cost of capital.

The pension asset, the prepaid pension assets that we contribute to, there is a mechanism for full recovery of that investment, as well as true-up, so that we’re fully collecting on a real-time basis our true net periodic pension costs. So that will provide cash flow relief, not necessarily earnings release, but cash flow relief.

The earnings release comes off of the recovery of the cash we’ve invested, which is not currently earning the return. So, you see that on the Item 6. The O&M in excess of the RAM, the RAM mechanism, the interim mechanism, which was intended to keep us full for inflationary costs and investments between rate cases had a cap implemented to that.

And so, to the extent they costs and investments exceeds those levels, we have some exposure that is being trued up. And remember, we’ve been relying on those RAM mechanisms now for six years, much longer than was originally planned. So that will get trued up.

And then the plant additions that were over the RAM cap, those have been put into the rate base calculations included for settlement here within the rate case cycle. So, we view everything to the right of that, the first three items as issues that are being addressed through these current rate case cycles in there.

And it’s the opportunity to close that significant gap between our allowed and what we actually achieve..

You get past this cycle of rate cases and then you get to your regular cycles for years….

Yes..

Utility.

Do some of these take care of themselves? I mean there is not necessarily trackers but are there -- should we work -- will you work your way to the 120 basis-point lag by the time you get to the next round, or will some of that be dealt with in these filings?.

Remember, they’re dealt with, this is -- they are dealt with on a utility by utility basis. So, each of the three utilities have some elements of each of these lag items within the rate case. The rate case should be a full reset in terms of what our O&M recovery is, return on rate base, and adjustment of our ROE.

What’s not indicated on here, this is looking historically at the historically allowed, so the ROE, allowed ROE will be reset as well. That creates the cap on ultimately what we are likely to achieve at the high-end, but all of these items should be trued up as we come out of the rate case cycle.

And then to the extent that there is deviation as we go forward, we make incremental investments between the settled rate case and the up -- and each year, as we go out we make investments. The RAM mechanisms, those decoupling mechanisms should keep us full between the three-year rate case cycles, the triennial rate case cycle at each utility.

Did that answer your question?.

Yes. I mean, going from three years to six years is going to help….

Tremendously..

This lag too quite a bit. Okay..

Yes. But this should reset base rates that give us recovery on a settled basis as well as our O&M -- O&M cost, our rate base investments that are included in that rate base at or allowed ROE.

So that -- we should be coming out this with that reset but further, with all of the coupling mechanisms going forward that also provide benefit in between rate cases at each of the utilities..

And Craig, I would also add we -- with the commission’s establishment of that major project’s interim recovery mechanism, it has -- there is a mechanism to recover cost for major projects in between rate cases..

So, Charles, if you look at slide 22, where it says plant adds over the RAM cap, that new major project, interim recovery mechanism is intended to address that issue in between rate cases as well..

I want to mention though that all of this is in the context of the Power Supply Improvement Plan, the grid modernization plan which is all intended to have the utility work in collaboration with all the stakeholders towards the state policy, getting us to a renewable energy future with customer benefit..

[Operator Instructions] Our next question comes from Paul Patterson with Glenrock Associates. Please go ahead..

Very quickly, on the loan loss provision and the credit quality, what was driving the credit quality improvement, was it real estate prices or anything else?.

Thank you, Paul. Rich always loves the question on the bank..

Yes. Paul, we’ve been working through some of the higher risk exposures we have, particularly around leverage lending and national book, and those are the areas that we just decided at this part of the cycle we wanted a bit less exposure to.

A couple of larger exposures locally on the commercial real estate side that have -- we worked through and got paid off. And that’s it. It’s been a sort of a combination of some specific local exposures and then that national leverage lending exposure..

Okay, great. And then, on the piece of approval, and I guess sort of following up on Greg’s question and I think you may have answered it, but I wasn’t completely paying attention, I guess.

When you mentioned about revising your CapEx forecast I think, providing that in February next year, does that include what you currently -- should we think of there being a significant revision to that CapEx forecast, due to the piece of approval?.

No..

Okay..

As I mentioned before, we’re looking at that range of the $400 million to $500 million on a go forward basis. And we’ve kind been obviously thinking about that number as we’ve gone through working through the Power Supply Improvement Plan and also the grid modernization strategy..

Okay..

And again, it’s driven by those plans and state policy and customer benefit..

Right. I thought, when I read it, and tell me if it’s different, but you obviously have a better interpretation on perhaps than I do. But, it seemed like it was a pretty positive order. But, one thing that I thought was a little bit -- that they raised an issue of was the rate impact over time with customers.

And I was just wondering, A, how did you feel about the pieces of order that came out? But also just about that specific issue, what do you think about the potential rate impact or what should we think about that, given the obvious sensitivity to it, which I’m sure you guys are -- I know you guys are very focused on.

So, can you sort of just address those -- the general issue of the order and also just that specific issue?.

Thank you, Alan here. Yes, we’re pleased at the acceptance of the planning. That was done, as you know, over a long time, but including a lot of the stakeholders and community input. Contrary to some interpretations, the commission did not reject things in the order, nor approved things in the order.

And those open items that might contribute to additional costs, are still subject to our application with community input and a full hearing. So, it’s our obligation to provide information as to customer rate impact. And so, we did that from a very conservative standpoint. We are very aware of the issue as the commission and other stakeholders.

We have to work on the mitigating alternatives, and there are many. And we will be working through that with the stakeholders and the regulators as we move forward.

If you look at the drivers for our rates in isolated island on grids, a lot of it is due to imported fossil fuel costs, which we are trying to get off of, those things don’t change immediately however, as we transition. So, there are many things that we are looking at.

And I think as this process moves forward that we have robust discussion around all of these issues..

Okay. In terms of jus the near-term action plan and this concern about the affordability, that section of it.

Do you feel that like, I mean obviously you are going to be addressing it and what have you, but did you feel that that may slow down the CapEx, or in other words, what should we think about in terms of at least in the near-term potential issues associated with rate impacts? You mentioned the fossil fuel offset, but is there anything else we should think about that might be mitigating the cost?.

Nothing that I can really discuss with you now, because we really do have to include all of our stakeholders. We have talks and I'm sure others have as well. But you will be hearing more about it, as we implement the PSIP but there are ways. I also want to be clear though that this transition comes at a cost..

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, Brendon. And thank you for all the participants on the call. Have a good afternoon..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..