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Edited Transcript of HE earnings conference call or presentation 1-Nov-19 8:15pm GMT

Q3 2019 Hawaiian Electric Industries Inc Earnings Call

Honolulu Nov 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Hawaiian Electric Industries Inc earnings conference call or presentation Friday, November 1, 2019 at 8:15:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan M. Oshima

Hawaiian Electric Industries, Inc. - President, CEO & Director of Hawaiian Electric Company Inc.

* Constance Hee Lau

Hawaiian Electric Industries, Inc. - President, CEO & Director

* Gregory C. Hazelton

Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer

* Julie R. Smolinski

Hawaiian Electric Industries, Inc. - Director of IR & Strategic Planning

* Richard F. Wacker

Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB

* Tayne S. Y. Sekimura

Hawaiian Electric Industries, Inc. - Senior VP & CFO of Hawaiian Electric Company Inc.

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Conference Call Participants

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* Andrew Levi

ExodusPoint Capital Management, LP - Portfolio Manager

* Charles J. Fishman

Morningstar Inc., Research Division - Equity Analyst

* Eric Lee;Bank of America Merrill Lynch;Analyst

* Jacquelynne Chimera Bohlen

Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research

* Paul Patterson

Glenrock Associates LLC - Analyst

* Vedula Murti

Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Q3 2019 Hawaiian Electric Industries, Inc. Earnings Conference Call. (Operator Instructions) Please note that today's event is being recorded. At this time, I'd like to turn the conference call over to Julie Smolinski, Director of Investor Relations and Strategic Planning. Please go ahead.

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Julie R. Smolinski, Hawaiian Electric Industries, Inc. - Director of IR & Strategic Planning [2]

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Thank you, Jamie, and welcome, everyone, to Hawaiian Electric Industries Third Quarter 2019 Earnings Conference Call.

Joining me today are Connie Lau, HEI President and Chief Executive Officer; Greg Hazelton, HEI Executive Vice President, Chief Financial Officer and Treasurer; 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 third quarter and our outlook for the remainder of the year. Then we'll conclude with questions and answers.

During today's call, we'll be using non-GAAP financial measures to describe our operating performance. Our press release and webcast presentation are posted on HEI's Investor Relations website and contain reconciliations of these measures to the equivalent GAAP measures. Forward-looking statements will also be made on today's call. Factors that could cause actual results to differ materially from expectations can be found in our webcast slides, our filings with the SEC and on the HEI website.

I'll now ask our CEO, Connie Lau, to begin with an overview.

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [3]

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Thanks, Julie, and aloha to everyone.

In the third quarter, we continued to execute well on key initiatives across our enterprise and our subsidiaries delivered solid results. Consolidated net income was $63.4 million, and EPS was $0.58, compared to $66 million and $0.60 in the same quarter last year. Excluding a onetime tax adjustment at our utility in the third quarter of 2018, our third quarter 2019 results would have been about 4% higher than the prior year quarter. Overall, we continue to track in line with our 2019 plan.

We're reaffirming our consolidated earnings guidance range for the year with some updates to underlying drivers that Greg will address shortly. At our utility, we continue to work together with our communities and stakeholders to find the best ways to achieve a clean energy future that's affordable, resilient and reliable. As we've often said, this will take our whole community. It's what we call in Hawaii, a Kakaako thing, community acceptance, the ability of the competitive market to propose cost-effective projects, land availability and customer participation are all key to how fast we can move forward as a state.

Our utility team has worked hard to ensure that for our part, we can fully support the integration of renewable projects, distributed energy resources, electrification of transportation and more to reach our state's aggressive clean energy goals. We're on track for our next renewable portfolio milestone of 30% by 2020 and our record Stage 2 renewables, storage and grid services procurement launched earlier this year, will help us make further strides. Requests for proposals were issued in August with bids due this month. Our utility will be submitting self-bid proposals for reliability projects per our commission order.

We continue to look for ways for customers to engage, to help reach our collective clean energy goals, including enrolling in projects with aggregators to turn customer-sited solar and storage into virtual power plants. We also recently launched Hawaii's first community solar project, providing a way for customers without access to rooftop solar the opportunity to lower their bills and be part of our clean energy transformation.

The performance-based regulatory process or PBR, now in Phase 2 is another way we and our stakeholders are working together on the best path to achieve our goals. Consistent with commission guidance from the outset, gradualism and the financial integrity of the utility have remained key principles of PBR. While the details will be worked out over the next year before the anticipated December 2020 final order, the commission's process allows for thoughtful design of new mechanisms and reduces the risk of unintended consequences.

As we continue to advance our clean energy goals, we're also focused on operating our core utility business well, maintaining our system, keeping it resilient, improving cost efficiency and building customer satisfaction. Our strong operational capabilities were key to our utility winning a 50-year contract to own, operate and maintain the electric distribution system serving the army's installations on Oahu. In a rigorous competitive process, we made the case that we could deliver a cost-effective, long-term solution for the army. Subject to commission approval, our ownership and operation of the army system would begin in late 2021. While strategically important, the earnings impact is not expected to be material as we already provide the army's energy needs. The contract will, however, provide an opportunity for us to add modestly to our rate base.

Also, as we've spoken about before, we're very focused on efficiency improvements to deliver customer savings. Our ERP enterprise system implemented last year is already delivering savings ahead of schedule, which are embedded in our pending rate cases. We have a host of other cost management initiatives underway, including our one company effort to drive consolidation and standardization across our utilities and Oahu facilities consolidation plan expected to yield savings beginning in 2023. Use of technologies to reduce costs such as drones for aerial inspection and benefit program evaluation. And of course, our transition away from fossil fuel-based energy to renewables provides lower cost electricity and more stable bills for our customers.

As for pending rate cases, we expect interim rates in our Hawaii Electric Light 2019 rate case by November 14. We filed a partial settlement with the consumer advocate in September and are awaiting the commission's decision on the open items, including ROE. We filed our Hawaiian Electric 2020 Oahu rate case in August and expect interim rates next summer.

Turning to our bank. American's results and increased earnings for the quarter reflect good performance and prudent expense management in a volatile market environment. As soon as we started to see the yield curve shift earlier this year, the bank heightened its focus on expense control, strengthening performance and efficiency in the quarter. The bank's focus on customer relationships also served it well in the third quarter, helping deliver strong loan growth. Net interest margin remained steady despite the continued challenge of lower interest rates as asset yields are consistent with the linked quarter despite lower rates, and the bank maintained its low cost of funds.

Net interest margin was a solid 3.82% for the quarter and 3.87% on a year-to-date basis, well above peers. American completed the sale of its former headquarters in October, achieving another important milestone in its transition to its new campus. The gain will be recognized in the fourth quarter, delivering the financial benefit we've been projecting in our guidance.

Pacific Current continues to optimize its existing assets and evaluate new opportunities that align with its sustainability focus. It recently executed a contract to purchase locally produced biodiesel for its Hamakua Energy plant, advancing Hawaii Island's energy independence and energy security and supporting the local economy. Construction activity continues for Pacific Current solar plus storage projects at 5 University of Hawaii campuses, although some of the sites have experienced permitting and other delays that push completion of several projects into 2020.

Pacific Current also recently signed a joint venture agreement with electric vehicle charging company EverCharge to bring its charging technology to Hawaii. The system will help advance our state's clean transportation and energy goal by facilitating charging in high rises and condos, where approximately 50% of Oahu's residents live and which often lack the infrastructure to allow multiple owners to charge their vehicles in a timely manner. These initial projects are just the beginning for Pacific Current and we continue to be excited about its future.

I'll now ask Greg to cover Hawaii's economy, our third quarter results and 2019 outlook.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [4]

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Thanks, Connie. Hawaii's economy remains stable with some softening this year following last year's peak levels. Unemployment remains steady at 2.7% in September and well below the national rate. This year is seeing continued strength in tourism arrivals, although visitor spending is less versus record highs in the first half of last year. This is in part due to higher costs for international visitors and a stronger dollar.

Hawaii real estate fundamentals remain sound, while year-to-date sales volumes were flat for single-family homes and declined 6.7% for condos, median prices are relatively steady, following 7 consecutive years of price appreciation. The state's outlook is stable, with GDP expected to continue to grow modestly in 2019 and 2020.

Turning to our results. Q3 earnings were $0.58 per share compared to $0.60 per share in the prior year quarter. As Connie mentioned, the onetime tax benefit in the third quarter of last year increased EPS that quarter by about $0.05. Excluding that onetime tax benefit, year-over-year earnings grew at both the utility and the bank while holding company and other segment loss grew slightly.

Pacific Current's operating asset, Hamakua, continues to contribute to earnings, offsetting the cost of building out the platform and its development activities.

On the right side of the slide, our consolidated GAAP ROE for the last 12 months was 9.2%.

At the utility, we expect improvement in realized ROEs from Hawaii Electric Light interim rates in mid-November.

On Slide 9, utility earnings were $46.8 million compared to $49.7 million in the third quarter of 2018. Without last year's onetime tax benefit, the utility's Q3 results would be nearly 5% higher than the prior year quarter. The most significant net income drivers in the quarter this year were $6 million from rate increases and higher rate adjustment mechanism revenues, $2 million from the recovery of Scofield generation project under the major project interim recovery mechanism, $2 million from higher AFUDC and lower interest expense and $1 million from pole attachment fees. These items were partially offset by the following after tax items: $8 million higher operations and maintenance expenses compared to the third quarter of 2018, which I'll discuss momentarily; the previously mentioned $5 million tax benefit in the third quarter of 2018; and $2 million higher depreciation due to increasing investments to integrate more renewable energy and improve customer reliability and system efficiency.

On O&M, you can see from the chart on the bottom right that we've experienced higher costs for overhauls and maintenance for generating fleet.

We saw higher expenses in these items last quarter as well as last year. Given the variability of revenues, we have to run older generating units less efficiently, meaning more wear and tear. We need to keep these older units in good repairs that are important for reliability as we integrate more renewable projects. While expenditures for maintenance and overhauls are recognized as incurred, rate case recovery is based on historical averages, which are well below levels experienced this year. This higher -- these higher levels will be included in future historical averages, so we expect to see the benefit of those in future rate cases.

Turning to the bank on Slide 10. As Connie noted, American executed well in the third quarter despite a challenging interest rate dynamics, growing net income to $23 million, up from both the linked quarter and the same quarter last year. The increase compared to the linked quarter was primarily due to lower provision, lower net interest expense and higher noninterest income. The increase over the prior year quarter was largely due to lower provision as well as higher net interest income and higher noninterest income partially offset by higher noninterest expense.

American achieved solid profitability in the third quarter. Return on assets of 129 basis points was up from 96 basis points in the second quarter and 122 basis points in the same quarter last year.

Return on equity continued to compare favorably to peers at 13.7%. It was up versus the linked quarter of 10.5% and comparable to the 13.8% in the same quarter last year. Overall, good profitability at the bank.

Let's look at the key drivers of this performance. Net interest margin, the core driver of bank net income, remained steady at 3.82% and continue to perform well versus peers. Year-to-date, American's net interest margin is 3.87%. Interest-earning asset yields were stable at 4.11% and we were able to maintain our low cost of funds at 30 basis points. American's cost of funds continues to be best-in-class.

Turning to the next slide. Net interest income of $62.1 million increase versus the linked and prior year quarters. The increase from the linked quarter was primarily due to lower amortization of premiums in the investment securities portfolio as well as higher loan volume. The increase compared to the prior year was primarily due to higher loan volumes and yields. Noninterest income was $16.3 million compared to $15.5 million in the linked quarter and $15.3 million in the third quarter of 2018. The increase compared to the linked and prior year quarters was primarily from higher mortgage banking income, as lower rates drove stronger residential loan production and more loan sales.

As of September 30, 2019, total deposits were $6.2 billion, rising to 0.8% annualized from December 31, 2018, with low-cost core deposits growing 2.1% annualized to $5.4 billion. American delivered strong loan growth in the quarter, with loans rising to $5.1 billion as of September 30, 2019, up $240 million or 6.6% annualized from December 31.

The loan growth was driven mainly by increases in the home equity lines of credit, commercial and commercial real estate portfolios. We still expect to meet our target of low to mid-single-digit earning asset growth for the full year.

Credit quality remains sound due to prudent risk management and stable economic environment.

We're not seeing any significant deterioration across our portfolios. But as you've seen earlier this year, a decline in credit quality of a single large commercial or commercial real estate credit can have an impact. The third quarter provision of $3.3 million declined from 7.7% in the linked quarter and $6 million in the same quarter last year.

The lower provision versus the linked quarter stemmed from the payoff of a nonperforming commercial credit and the partial charge-off of the commercial credit that contributed to elevated provision in the linked quarter. That charge-off did increase the net charge-off ratio as shown on the left side of the page. The lower provision versus the prior year quarter was primarily due to higher provision that quarter from the consumer and credit scored loan portfolios.

As Connie mentioned, the bank has worked prudently to control expenses in this more challenging banking environment. Recall that the bank has had additional occupancy costs this year from the transition to its new campus. Excluding those costs, efficiency ratio has improved on a year-to-date basis compared to last year.

Turning to utility CapEx. We are executing at or above our $370 million target discussed in our last -- our call last quarter, as we focused on maintaining our system and ensuring resilience as we grow the amount of renewables on the grid and paved the way for increased electrification.

Recent examples include a new transformer to provide reliability and resilience for the airport in Honolulu, infrastructure upgrades to electrify our ports and additional electric vehicle charging infrastructure. We see this type of core investment driving fairly stable CapEx moving forward.

We continue to expect CapEx of roughly $400 million or more in 2020 and 2021. We are -- as Connie has mentioned, we are reaffirming our 2019 consolidated earnings guidance of $1.85 to $2.05 per share.

At the utility, we expect EPS to remain within the $1.40 to $1.47 range for the year. This is despite the fact that utility O&M costs have been coming in higher than projected. We now expect O&M to be 5% to 6% over 2018. This is due to a few key dynamics we've seen this year. First, as we discussed, we realized higher overhaul and generation maintenance expenses to ensure reliability and incorporate more variable renewable generation. Second, we've seen expansions in scope in several key areas, driven by regulatory requirements and stakeholder input, including the increased scale of our latest renewable RFP, new greenhouse gas emission life cycle requirements for projects in the pipeline in all future PPAs, increased planning for nonwires alternatives and expanded PBR workshops.

Third, we're making strategic investments in advancing electrification of transportation, improving resilience and reliability, providing additional customer options and continuing to improve our stakeholder and customer engagement, while also working on a Hawaii Electric 2020 rate case and preparing to transition to the new PBR framework.

Despite all of this, we believe utility EPS will be within our guidance range. The offsets don't all come through the O&M line. They include some lower non-O&M expenses as well as higher operating revenues. We will continue to seek efficiency improvements moving forward. Connie mentioned a number of cost management plans underway, and we're driving customer savings through our ERP implementation, which is delivering $2 million in savings this year and a steady state of savings of $9 million beginning in 2020.

As discussed last quarter, we expect bank earnings to be at the low end of the $0.79 to $0.85 guidance range as we continue to expect net interest margin and low -- at the low end of the range and the provision at the high end of the range, but both remaining within the range. Our guidance includes an $8.8 million pretax gain from the sale of ASB's former headquarters in October to be recognized in the fourth quarter, including the carrying costs from its exited properties, the net gain is about $0.03 to $0.04 per share.

Connie will now make her closing remarks.

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [5]

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Thanks, Greg. In summary, third quarter performance was in line with expectations, and we expect to continue performing in line with plan for the remainder of 2019. Our utilities are focused on achieving our state's 100% clean energy and carbon neutral economy goals while ensuring affordable, reliable and resilient energy. We'll continue to move forward strongly on these important goals. But it's not just about the utility, this will take our whole community working together.

Our bank continues to provide a strong platform to deliver sustained value for customers, shareholders and our communities. Its performance in the current cycle underscores its prudent management, expense control and the strength of its business model. Pacific Current is showing promise as it continues to optimize existing assets and pursue further sustainable investment opportunities. Our business model continues to provide the financial resources to invest in the strategic growth of our companies and our state's sustainable future while supporting our dividend, which the Board maintained at $0.32 per share this quarter, continuing our uninterrupted dividends since 1901.

And now, we look forward to hearing your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question today comes from Eric Lee from Bank of America Merrill Lynch.

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Eric Lee;Bank of America Merrill Lynch;Analyst, [2]

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So maybe first off, given relatively flat year-to-date earnings results for 2019 guidance, could you just walk us through the drivers and expectations for remaining year-on-year EPS uplift?

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [3]

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Yes. Well, as you know, we are reaffirming our guidance for the year. We've indicated in the drivers, as you break it down to the -- to each of the subsidiaries for American Savings Bank, because of the lower yields on assets, although they've maintained their core deposit rates, we're expecting lower net interest margin, which is -- which will be at the low end of the guidance range, which we've provided to you on our slides. So we'd anticipate that NIM. And we've also indicated that the provision while in the range would be at the high end of the range. We do expect in addition, which we've also disclosed as well as our return on assets, we do expect to be in line with our overall return on asset targets. Those were the elements and the drivers that we provide guidance around.

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [4]

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And Eric, we also mentioned that they've completed the sale of their headquarters. So that gain that was expected to be roughly $0.03 to $0.05 will be coming in, in that same range in the fourth quarter.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [5]

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Yes. In that $0.03 to $0.05 range, Eric, include -- well, is netted with the additional carrying costs of carrying the exited properties facilities through the end of the year. So that's also embedded in our guidance range. So they completed that as anticipated, which is helpful.

On the utility side, again, given that we've had -- we expect to be well within the guidance range. We've seen some higher O&M costs that we've highlighted, but we've had several offsets to those whether on revenue side as well as additional cost savings that they've been able to incur in other areas. So we -- the core driver for the utility performance also anticipates the interim rate from the Hawaii Electric Light rate case in November, which you'll see some benefit from in the fourth quarter and assuming that we continue to do -- that the fourth quarter goes as planned with no onetime types of expenses or other types of adjustments we tend to come in line, in line with our guidance levels.

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Tayne S. Y. Sekimura, Hawaiian Electric Industries, Inc. - Senior VP & CFO of Hawaiian Electric Company Inc. [6]

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This is Tayne. And I would also like to add that we do have performance incentive mechanisms, and we're performing well within our expectations for that.

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Eric Lee;Bank of America Merrill Lynch;Analyst, [7]

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And actually, just to touch upon the utility a bit further. I mean, with the extent of lag in third quarter with 7.6% earned ROE, could you just discuss potential drivers for reducing lag near-term pending PBR?

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [8]

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Yes. And just maybe to frame this up, and I'll let Tayne also maybe explain some, but that 7.6% includes the fourth quarter of last year. And as you remember, the fourth quarter of last year, we had some significant onetime events and overruns from an O&M perspective. So as you roll forward into the current year, where we don't anticipate that those -- that will roll off from that LTM calculation to the calendar year calculation and with the new revenues that we've highlighted that are driving the year-to-date numbers, the interim rate case. I would say the other element here, though, is that the utility, has from a CapEx perspective, is performing on deployment of capital investment as they prioritize some reliability projects and customer-driven projects. So at the $370 million or above level, they should come in well. So you've seen good AFUDC from those investments, and you can continue to see them prioritize on the reliability, resilience, CapEx levels.

So again, part of that ROE impact that you're seeing on an LTM basis incorporate some of the prior year that will roll off as we go to the annual number. And so we do anticipate some improvement in our realized ROEs on a calendar year versus calendar year basis.

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Eric Lee;Bank of America Merrill Lynch;Analyst, [9]

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Got it. That's helpful. And maybe just to shift gears a little bit. Could you just discuss expectations for net interest margin at ASB on a forward basis? And should we expect any incremental volatility associated with FAS 91 -- in coming quarters?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [10]

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So this is Rich. Yes, I mean, obviously, with the continued cuts of rates, we expect pressure on the net interest margin. We've given you the guidance on the full year that we expect to be at the low end of the range on that. And we've been holding the margins as well as we can, a little bit better than our local peers. But I think in -- at the end of the year, we'll give more guidance on next year. We're not prepared to do that right now. But directionally, there's pressure. I mean, it's clear, and we expect that pressure to continue.

In terms of FAS 91, yes, it's -- we do expect that it's going to continue to be a little bit volatile. The prepayments on the pools, determine what we actually get in terms of the amortization of the premium, it was a little bit slower than second quarter, this quarter, but we'll have to wait and see what fourth quarter looks like.

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Operator [11]

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Our next question comes from Paul Patterson from Glenrock Associates.

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Paul Patterson, Glenrock Associates LLC - Analyst [12]

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Just to sort of follow up, and I apologize if I sort of missed this. The O&M outlook which has gone up for this year, which you guys, I think, said was offset by revenues and other cost savings. Could you elaborate a little bit again about what exactly has changed that quarter-over-quarter, your outlook what you expect of that for this year?

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Tayne S. Y. Sekimura, Hawaiian Electric Industries, Inc. - Senior VP & CFO of Hawaiian Electric Company Inc. [13]

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Paul, this is Tayne. Let me take you through the additional guidance we gave for just on this call. As Greg had mentioned earlier, we do have higher expenses for our overhauls and generating units. These overhauls are based on scheduled, overhauls based on run time and we've been running our units hard. And when we open the unit, sometimes there's more work than expected to be done on those units. And again, we keep these units operating to be in really good shape to backstop the increased renewables that we have on our system. We've also had increased scope of work in things like greenhouse gas life cycle analyses, requirements for our projects as well as additional planning costs associated with things we need to look at nonwires alternatives as an example. And with the PBR docket ongoing, there's been increased work in our workshops and interactions that we've had with our stakeholders.

And finally, I would also mention that our Stage 2 RFPs with the -- that coming in, we anticipate work to review the RFPs that are coming in. Offsetting that are items not in the O&M line item.

For example, we manage the generating heat rate of our units. We also are managing our customer service area where there's a performance incentive mechanism associated with that. And of course, we don't know the outcome of that until the year-end, but we're performing well there. We're looking at things like when we refinance, and we have the opportunity to refinance debt. And of course, those savings can be passed on to customers in rate cases. And then finally, a note on our ERP, which, by the way, is a year old now. We continue to get realized benefits out of using the system. And all of those costs as part of our commitment are being passed back to customers. So that was kind of a summary there, Paul.

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Paul Patterson, Glenrock Associates LLC - Analyst [14]

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Okay. I mean, I'm just sort of -- I mean, I guess, it's sort of hard to sort of -- how do we think about 2020 coming up here? I mean, so these things sound like they're onetime items on the O&M side, but I'm not really clear about how all these items sort of moving forward are going to be tracking. Any sense about we should think about that?

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Tayne S. Y. Sekimura, Hawaiian Electric Industries, Inc. - Senior VP & CFO of Hawaiian Electric Company Inc. [15]

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One thing you -- for these costs related to increased scope of work with planning for resilience and all those things, we were looking at -- we have incorporated that into our Hawaiian Electric 2020 rate case. So you should think about those costs being included there. And we look at that rate case as a case settled, we believe will be a starting point when PBR will be in effect, a year later.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [16]

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And as we mentioned, even the overall cost that we're incurring now are now part of the baseline for the -- within the new rate case as those higher levels of costs get incorporated into the historical averages that are used. So again, there's mechanisms there. They just don't perfectly have matched what we've had incurred to date. So there's some timing difference there.

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [17]

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Yes. And Paul, I'd add some of it that Tayne mentioned are in response to things like court decisions or PUC orders like the greenhouse gas emissions analysis that was as a result of a court order that came out just this year. So those will get incorporated going forward.

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Paul Patterson, Glenrock Associates LLC - Analyst [18]

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Okay. So then looking at the appendix Slide 21 and the structural last 12 months ROE, the 150 basis points that you guys are mentioning as being sort of -- that you guys are graphically demonstrating as being sort of the structural impact. How should we, in general, think about that? Do you see that pretty much holding in there, plus or minus 10 basis points or something or which is what I think it was in the last few looking back? Or how should we -- is that pretty much how you still see it? Or any thoughts on that?

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [19]

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Paul, I would look at it. Let's take the components, the customer benefit adjustment, and we have an appendix slide there...

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Paul Patterson, Glenrock Associates LLC - Analyst [20]

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Right. That goes down a little bit.

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [21]

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Yes, it will be decreasing over time. The ERP item there, as we get those included -- incorporated in our rate cases, that should also disappear. One thing out there, when we look at the RAM revenue accrual delay those are the kinds of discussions we're having in the PBR workshops to see, as we look at the entirety of how we collect revenues between rate cases. We're examining things like this type of delay that's being discussed as well. So those 3 items I would point out for you as changing with the ERP and the -- the ERP one eliminated as the costs are included in rate cases, customer benefit adjustments decreasing and the RAM revenue accrual being best in the PBR. And of course, something like MPIR with a midyear convention. It really just depends on when the project goes into service in that year, right? So it can go either way.

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Paul Patterson, Glenrock Associates LLC - Analyst [22]

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Okay, great. And then just on the assessment regarding the insurance premium, the assessment credit for the FDIC, how much was that?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [23]

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$650,000.

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Operator [24]

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Our next question comes from Jackie Bohlen from KBW.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [25]

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I just wanted to touch on expenses and see some of what you've been working on in light of the low rate environment in order to control costs, just some added color there would be great.

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [26]

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Okay. So as you know, one of the big ones is the campus moves. And we're -- because we're moving out of 5 different properties into 1, and you haven't seen that benefit come through. In fact, you've seen a little bit of duplication of costs as we've brought the campus online, and we've been in the progress of exiting the other properties. We mentioned we were getting out of 4 properties, 2 were leased, 2 were owned. We got out of 2 of them as of the end of the third quarter, where we were out. While we were out physically earlier, we were out of the costs fully by the end of the third quarter. And then we just sold at the time -- and Greg mentioned, we just sold the headquarters building. And so as of October, we're out of that one and we've got a nice gain that we anticipated. We have 1 more to go, and that's our Mililani property, and we're -- we believe that, that would be an early first quarter event, that's our hope. And timing could move in or out a little bit on that one.

So as we get through those, then we're in one place, and we get the efficiencies of operating in one place, and we expect that to continue. And so we're still targeting continued improvement over the years of efficiency improvement. I think we've been talking about a point a year as our goal, and we expect that, that's not going to change.

The -- additionally, we're working on self-service opportunities for customers. We have a rollout of our new ATM fleet that begins first quarter next year and goes that brings additional opportunities for customer self-service. We are -- all the things you'd expect on e-banking and those capabilities in mobile banking, we have and are doing and driving adoption of those so that we reduce in-branch transaction flow and that transfers through to branch network productivity as well.

So I think we're hitting things across the board. And this year, because of the building dynamics, you don't see it in the reported, but we see it in what we're doing on a measurement and the ongoing cost of the enterprise.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [27]

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Okay. And so a lot of these initiatives that you're taking, my assumption is that these helped to offset the impact of margin pressure on efficiency to enable you to still get that 1 point of improvement, is that a fair assessment?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [28]

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That's what we're working to.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [29]

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Okay. And that was -- and I realized that it's offset by some costs, but that's -- you said that was an $8.8 million gain expected in the fourth quarter and the building?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [30]

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Right.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [31]

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Okay. And then just lastly for me on fee, since we've already covered the margin. We've seen fee income and I understand mortgage banking has been strong because of the rates, but outside of mortgage speaking, there's still been increases in fees and outside of unique BOLI-related items. Is there anything unique that's driving those up? Or is it just strengths that the bank can focus?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [32]

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Yes. No, there's nothing unique. It's 3 yards and a cloud of dust kind of stuff, where we're executing on a lot of different elements. We've been able to get some improvement out of our investment services. We've been working on a shift there ahead of the fiduciary rule to move a lot of our work from commission based to advisory based and more trailing revenues on assets under management, that has, over the last couple of years, has contributed to declines of fees in that space and that's stabilizing. So the absence of declines is good, and we're getting some modest improvement on that level and that's letting some of the other work show up as growth. And so it's a -- as you know, a ton of little things inside there and nothing big to highlight.

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Operator [33]

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Our next question comes from Charles Fishman from Morningstar Research.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [34]

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Just -- I guess, this would be for you, Connie or Greg, dividend review. I mean, that is still scheduled for -- you would meet with the Board late this year, early next year, given your thoughts on 2020 and then we'd hear about it in the fourth quarter call of any decision on the dividend?

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [35]

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We typically would be talking to the Board in the new year. And so our announcement has ranged between first and second quarter. So it will be in that time frame.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [36]

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Okay. And still 65% payout ratio is the target for you?

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [37]

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Yes.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [38]

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And then one other question. Slide 6, this EverCharge system. And you make a point there under the bullet point that the building owner, it sounds like does not -- is not going to be subject to a lot of cost to put this in, which means there's probably going to be fairly decent acceptance of this and good penetration rates. Is that going to cause you an issue on the distribution system and for upgrades of Hawaiian Electric system? And I guess, that obviously begs the question, is that in the CapEx forecast for the next couple of years?

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [39]

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Well, just to be clear, it's a managed system which takes -- optimizes the capacity of the existing building, which tends to have significant excess capacity to serve peak loads, which the building doesn't operate at the vast majority of the time.

So it means it's got a cost advantage in terms of getting into these multi-unit dwellings and condos and can come in at a lower price point and bring more charging units to the building at a lower cost. So that's -- we're very excited about it. It's been very effective in high density areas, such as San Francisco and other major cities within the U.S. So we're optimistic about that. It should drive as we believe there's pent-up demand for electric vehicle adoption in those underserved buildings right now. And so we think it should drive increased demand for electric vehicles and electric load. Looking at my utility, I think we're -- again, it's relying on existing infrastructure.

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Unidentified Company Representative, [40]

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Well, if it's within the envelope of the planned usage of that building it should and so to be a levelizer. But wanting to make clear, the separation of Pacific Current, HEI and the utility, so on these business opportunities, unless there's a need for system stability as we would with any vendor, we would not interact. So again, it's -- we treat Pacific Current like any other third party as it enters into the utility space.

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Tayne S. Y. Sekimura, Hawaiian Electric Industries, Inc. - Senior VP & CFO of Hawaiian Electric Company Inc. [41]

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Charles, does that make sense to you? So Pacific Current is on our nonregulated side and is working directly with, like, office management companies or the homeowners' association of those high rises. And this was our attempt as an enterprise to help drive electrification within our economy in those particularly difficult-to-address areas, which were the high rises.

I think you've heard us talk before about how individual homeowners, particularly those who have installed photovoltaics on their roofs are also buyers of electric vehicles and charge them off of those systems. But if you live in a high rise, you may not have that opportunity because you don't have your own PV to do that kind of charging, but you still want to own an electric vehicle. So we're trying to solve that problem. And to the extent, Scott has also been working with some of the office management companies that would also allow us to encourage daytime charging, which would be also good to match with the solar load.

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Unidentified Company Representative, [42]

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So I just want to -- from the -- because we have a whole group in the utility on electrification of transportation. We work with some of these same clients, but we are not aware of other vendors.

And we have some programs that may or may not be supplemental to or in lieu of, and we have some pilots in the pipeline that we might be showcasing because not every user, every condo has the same base of clients. And depending on where they're located, we're looking at other solutions also. It's going to take a whole portfolio of solutions to really move the market and availability of electric charging. And Hawaii is unique in our short driving distances. Not every user needs very fast charging frequently. So we're looking at the totality of that. And there is a separation on this. Aiming for the same goal, by the way.

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Operator [43]

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Our next question comes from Vedula Murti from Avon Capital.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [44]

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Is it still good morning to you guys over there?

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [45]

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Yes it is, Vedula.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [46]

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Kind of more mundane type of things. If I think about the -- in terms of the 2019 numbers, in order for the utility to kind of get even to the low end of the current guidance based on the current trailing 9 months as well as 4Q of last year, it appears that the net income differential needed to be like at least $42 million versus $35 million from last year. You highlighted several factors that are going to be favorable. So I'm wondering if you can give us a sense as if $42 million is what would get you to the bottom end of the range whether how I should think about the buildup for 4Q?

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [47]

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Well, again, you need to consider the roll-off of the fourth quarter, which had some significant charges roll through, which is not relevant to our 2019 guidance. So to -- and when we say, we believe we're well within the range. If we haven't indicated the low end of the range on this, we believe we're well within the range. We have an interim rates anticipation this year. We've had interim rate adjustments through the RAM mechanism that we've highlighted that have contributed to the year-to-date results. And despite the O&M challenges that we've had we've also had some wins within other areas that have contributed to our year-to-date results. We are in line with the plan on a year-to-date basis. And again, we expect to come in well within our guidance range.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [48]

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So if $35 million last year in 4Q '18 is depressed, what's the appropriate 4Q '18 that is kind of the baseline off of which the other positive factors you're highlighting would be built on?

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [49]

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Well, I think we highlighted last -- in the last fourth quarter, the onetime charges that we had during the fourth quarter, which we don't anticipate to be replicated this fourth quarter. Again, I'm not sure that, that's really reflective of our performance this year. In terms of -- and as you know, our rates tend to be skewed or actually, our earnings tend to be skewed towards the last half of the year. So we expect absent those onetime items, the new rates that have rate relief that's been put into effect. And the execution on our investment programs through the year will deliver solid results for the fourth quarter. We haven't and don't give quarterly earnings guidance, Vedula.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [50]

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I do apologize, but if you could simply remind me, in aggregate. Would you consider where the unusual charges that depressed 4Q '18 we have in utility that I should be taking out?

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [51]

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Yes. So one of the significant charges that we did have is we did have to accrue on our performance incentive mechanisms some penalties that we -- that were incurred in Q4 of last year. We also had some higher expenses as we were just coming off of the implementation of ERP in the fourth quarter. We had some higher expenses there.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [52]

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We'll come back to you with the reconciliation for the fourth quarter onetime items and elements that are not relevant to this year, Vedula. We'll be happy to follow up with you after this call.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [53]

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Okay. But otherwise, you're comfortable with the range, that's fine. In terms of the ASB obviously, you highlighted the property sale gain, that's something, because again, if I'm looking at the rolling run rate excluding what I would think would be a gain you'd be below the range of, like, for instance, $61 million is the current net income for 9 months last year, 4Q was $22 million, which will put you more like a $0.73 or something like that for the bank, which will be below the range. So obviously, you highlight some items that kind of gets you towards the bottom end of the range. And you indicated that there will be some efforts to help things on the expense side to offset interest compression. So just try to think about how those net -- if I'm thinking about going a little bit forward if you -- based on what -- given that the onetime items in 4Q will not replicate?

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [54]

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Are you talking about -- we're talking about the bank elements of the guidance, correct?

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [55]

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Correct. Yes.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [56]

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And we've -- and I think we've tried and we've broken that down in terms of net interest margin expectations, provision expectations, which are really the key drivers. And in terms of that, the cost -- I think, Rich, you've done a pretty good job of talking about some of the cost elements that you've been focused on during the year.

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [57]

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Yes, I think if you look at the year-to-date plus the directional number that you talked about for the fourth quarter and then consider the nonrecurring gain item. I think you can get your way to the number.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [58]

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No, I understand that. I'm just kind of like thinking about going forward here, if 3Q, even with -- even with the lower reserve assessment or whatever, if you have a run rate of approximately $20 million a year, which is fairly -- which has been pretty good compared in terms of your history, that still would be just towards the lower end of the 2019 range of we were just thinking about going forward. So I'm just trying to think about what -- how to net the pressure of the interest margin versus the benefits from the ongoing cost reductions and other initiatives you're doing.

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [59]

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As it relates to 2020 and beyond?

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [60]

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Yes.

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [61]

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Okay. I think I got to follow Greg's lead on when we talk about 2020. We talk directionally about cost reductions, as you know, in that third quarter number, for example, there are some of the duplicate costs of the properties and things that we referred to. So we will continue to work productivity we -- part of the offset of margin compression is asset growth as well. And so asset growth is one of the element, provision stabilization in some of the lines are other elements. So it's -- there's a broad thing. And then I think as we give you the guidance for 2020 and beyond in connection with the whole company, we'll be able to give a little bit more detail on that.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [62]

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I want to make sure -- well, I was taking a look at the asset growth, it looked like it was, like, about 6.5% or something like that in terms of assets or that type of thing. Is that actually a good proxy going forward in terms of trying to translate before the other pressures in terms of what the underlying top line growth is before the compression?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [63]

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It changes quarter to quarter. We've always talked about targeting mid-single digit loan growth. So that's at the higher end of what we would expect in any quarter. And we -- in other quarters, we're kind of in that 3 to 6 range is what we've long talked about as our target mid-single digit.

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Operator [64]

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Our next question comes from Andy Levi from ExodusPoint.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [65]

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Can you hear me?

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [66]

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Andy, yes, we can hear you well.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [67]

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Great. I have 4 very quick questions. First one, probably the most important is, why do we do conference calls after 4:00 New York time on Friday? That you could tell me at EEI, but just a little pet thieve I am. But I assume it probably has to do with the banks. On a Friday, I don't mind like after 4:00 any day, but Friday, especially in the summer. So at least it's not summer. It's on Halloween, so it's good. Okay, so anyway that's that one.

The second one, I was -- is more curiosity, I was reading an article, maybe about a week or 2 ago. And I guess, it had to do with, like, power demand, and kind of the fact that you have so much renewables on the various islands and I guess, the wind wasn't blowing and the sun wasn't shining. And so there was kind of an issue, which is not your fault just with being able to meet demand. And could you just kind of explain kind of what happened and how you fix that in the future? Or are there just too much renewables? Or kind of what's going on?

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Alan M. Oshima, Hawaiian Electric Industries, Inc. - President, CEO & Director of Hawaiian Electric Company Inc. [68]

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Andy, this is Alan. You may have read an article on a situation that occurred on Hawaii, which is not part of Hawaiian Electric, but we face the same issues. And they had an island-wide outage at a time when one of their units was down for plant maintenance and backup unit went down to another cause. At the same time, it was a cloudy day and so they couldn't hold load and so they have to -- they went on a blackout. And then for a couple of days until they could get things stabilized, they have to have rolling blackouts scheduled.

So -- but that indicates the fragility of islanded systems that cannot draw from neighboring states or other grids. We're all stand-alone, all of us, each island is stand-alone. And the needs for redundancy, backup and resource portfolio that is balanced and not all in one basket. So next time you come to Hawaii, you'll observe the cloud cover, for example, and even on each island, solar is not consistent throughout the day as clouds cover one part of the island. We follow it. We track it in our system operations centers to try to predict total solar load for minute to minute or even in smaller increments so that we can manage our own resources and other resources to meet the gaps.

And so you heard earlier about overhauls. We are operating primarily except for our new Schofield Generating Station, what I call the set and forget workhorses from years past, and we're operating them in somewhat abnormal ways of ramping up and down to meet the vagaries of the primary source, renewables, which we then use every bit that we can get. But that results in additional wear and tear as the plants age.

So back in 2006, on this island, Oahu, where 80% of the population resides, we had 40 days approximately of rain and cloud cover. We had mud slides, et cetera. So we use that in terms of our planning for what can carry us through and it's not just climate change, but things that happened on islands. And so you're right, it happens, and we have to do that all in our system planning.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [69]

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Got it. Okay. So one more utility question then a bank question. Just for this year, with the MPIR, how much earnings did you get year-to-date? And is there anything expected in the fourth quarter?

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [70]

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While, Tayne is looking that up, ask your bank question.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [71]

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Sure. Sure, not a problem. Okay. And then the bank question has to do with the loan loss provision expense, it was a lot lower in the third quarter than the prior quarter and the last linked quarter. And that seemed to be a sizable benefit to earnings. So can you explain what is driving that? And should we think that as being kind of onetime in nature? Or is that something that will reoccur every quarter? Or is it more of a function of just kind of the interest rate environment?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [72]

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The variability, the biggest driver of variability in our provision line comes when -- from the commercial business, which is normally a very low volatility, very low charge-off, and then we'll have a large commercial exposure, where we need to provide for a customer who's having some struggles. So that's what you saw in second quarter as we had a larger provision there. We had the absence of that in the third quarter, and we had some -- actually, some recoveries of prior ones that help drive that a little bit lower. If you compare to a year ago when we -- the third quarter of 2018, we added some provision for our consumer unsecured portfolio where we felt we wanted to bump it up. And so we increased coverage on that portfolio at that time.

Our guidance would generally put you at about $4.5 million a quarter as kind of a steady-state run rate and then we go up and down off of that based on anything unique that happens in the quarter. This year, we're at the high end of the range. This year, we're -- we've set the high end of the range, which would be on the order of $22 million, something like that. And it's a result of really commercial credit, a couple of commercial -- larger commercial credits this year.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [73]

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So really, going forward in our estimates, we should assume about $16 million. And there's -- I don't know what you -- because you have $22 million year-to-date?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [74]

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The low end of the range was about $4.5 million a quarter. So that would put you towards $18 million, something like that. And then give some room for a periodic large credit or a lump that might come through.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [75]

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Got it. And you're at $22 million year-to-date, and then we should assume that there's going to be some incremental piece in the fourth quarter as well?

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [76]

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We're at $17 million through third quarter.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [77]

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$17 million, okay, because you said something about $22 million, but...

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [78]

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That's our guidance, that's the high end of our guidance range for the full year.

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [79]

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Full year.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [80]

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I understand. Okay. I misunderstood. Okay. And then on the MPIR...

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [81]

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Andy, what I was going to add was that, that's not necessarily associated with the economy, the economic trend.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [82]

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Okay. And then the MPIR, do we have that? Or you want to get back to me on that? If you don't have it, no big deal.

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Tayne S. Y. Sekimura, Hawaiian Electric Industries, Inc. - Senior VP & CFO of Hawaiian Electric Company Inc. [83]

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I have that, Andy. This is Tayne. For the MPIR, we are collecting that for our Schofield Generating Station. And we did submit a filing with the Public Utilities Commission for about $19 million for MPIR, and that includes the return on the rate base, the depreciation and the incremental O&M. Now remember, under MPIR, when a project is completed in the first year, we get a return on half the investment. And then in the subsequent year, beginning in January, we get a return on the full amount of the investment. So 2019, we would be earning on the full amount of the investment. That's just how the MPIR works.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [84]

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So the number that she is referencing, Andy, is 60, 61 of our 10-Q, and it shows the incremental revenues that we're receiving this year that is we benefited from the recovery on the full investment balance for this year. So -- and there's further disclosures there. We'd be happy to talk to you offline as well, if

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [85]

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Yes. When I see , (inaudible) and I we can talk about. And then my last question, I lied, I have one more. I don't know what's the name of the mechanism is, but basically, when you do a -- sign-up renewable project, even though maybe it's not yours, like you did with AES earlier in the year, you get a benefit for that, a revenue benefit of onetime...

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [86]

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Incentive mechanism.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [87]

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Yes, how much have you accrued year-to-date on that?

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Tayne S. Y. Sekimura, Hawaiian Electric Industries, Inc. - Senior VP & CFO of Hawaiian Electric Company Inc. [88]

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Andy, this is Tayne. Year-to-date, we accrued $1.7 million in revenue. And the way that performance incentive mechanism works, it was provided in 2 phases. One, upon the agreement with the PUC approval is -- so you get half of the incentive. And then the other half of the incentive comes in a year after that project is in commercial operations. It was based on shared savings against a targeted price.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [89]

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For Phase 1. For that Phase 1.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [90]

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Yes, I thought there was a second one. So I was mistaken again. And in the fourth quarter, is anything expected in the fourth quarter of that mechanism?

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Tayne S. Y. Sekimura, Hawaiian Electric Industries, Inc. - Senior VP & CFO of Hawaiian Electric Company Inc. [91]

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We're not expecting anything under that mechanism, Andy.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [92]

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No, the next set of incentive payments from that would be a year after they're completed and in service.

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Richard F. Wacker, Hawaiian Electric Industries, Inc. - President, CEO & Director of American Savings Bank FSB [93]

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But there are some standard payments.

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Gregory C. Hazelton, Hawaiian Electric Industries, Inc. - CFO, Executive VP & Treasurer [94]

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Yes, there are other PIMs, but that was relative to the generation, right?

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [95]

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Right. Exactly.

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Operator [96]

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(Operator Instructions) And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

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Constance Hee Lau, Hawaiian Electric Industries, Inc. - President, CEO & Director [97]

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Thank you all very much for joining us on a Friday afternoon your time on the East Coast. So have a great weekend.

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Operator [98]

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And ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.