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Hawaiian Electric Industries (NYSE: HE ) Q4 2014 Earnings Call February 12, 2015 5:00 pm ET Executives Clifford Chen – Manager of Investor Relations and Strategic Planning Constance Hee Lau – Chief Executive Officer, President, Director, Member of Executive Committee, Chairman of Hawaiian Electric Company Inc and Chairman of American Savings Bank F.S.B. James A. Ajello – Chief Financial Officer, Principal Accounting Officer and Executive Vice President Alan M. Oshima – Executive Vice President of Corporate & Community Advancement, Chief Executive Officer of Hawaiian Electric Company and President of Hawaiian Electric Company Tayne S. Y. Sekimura – Former Chief Financial Officer of Hawaiian Electric Company Inc and Senior Vice President of Hawaiian Electric Company Inc Analysts Paul Patterson – Glenrock Associates LLC Charles J. Fishman – Morningstar Inc., Research Division Nicholas D. Yuelys – G. Research, Inc. Sachin Narendra Shah – Albert Fried & Company, LLC, Research Division Operator Good day, ladies and gentlemen, and welcome to the Q4 2014 Hawaiian Electric Industries, Inc. Earnings Conference Call. My name is Alex, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to Clifford Chen, Manager of Investor Relations and Strategic Planning. Please proceed, sir. Clifford Chen Thank you, Alex, and welcome to Hawaiian Electric Industries 2014 Fourth Quarter and Year-End Earnings Conference Call. Joining me this morning are Connie Lau, HEI President and Chief Executive Officer; Jim Ajello, HEI Executive Vice President and Chief Financial Officer; Alan Oshima, Hawaiian Electric Company President and Chief Executive Officer as well as other members of senior management. Connie will provide an overview of the year and recent company updates. Jim will then update you on Hawaii’s economy, our results for the fourth quarter and year-end and will provide 2015 earnings guidance. They will conclude with questions and answers. In today’s presentation, management will be using non-GAAP financial measures to describe the company’s operating performance. Our press release and webcast presentation materials, which are posted on our Investor Relations website, contain additional disclosures regarding these non-GAAP measures, including reconciliations of those measures to the equivalent GAAP measures. Forward-looking statements will also be made on today’s call. Actual results could differ materially from what is described in those statements. Please reference the forward-looking statements disclosure accompanying the webcast slides, which provides additional information on important factors that could cause results to differ. The company undertakes no obligation to publicly update or revise any forward-looking statements, including EPS guidance, whether as a result of new information, future events or otherwise. I’ll now turn the call over to our CEO, Connie Lau. Constance Hee Lau Thank you, Cliff, and aloha to everyone. 2014 was an eventful year for us, as we filed comprehensive energy transformation plans for Hawaii and announced a merger with NextEra energy. Our operating companies delivered solid financial results with earnings in line with our 2014 EPS guidance. Earned ROE was 9.6% on a GAAP basis and 9.8%, excluding merger-related expenses. At the utility, we continue to invest in the modernization and improvement of our electric grid, as we integrated more renewable energy. Even as recent oil price decreases have brought our customers bill relief, we remain focused on further reducing and stabilizing costs for our customers as well as continuing to bring cleaner sources of energy to Hawaii. And similar to Hawaiian Electric’s June abbreviated rate case filing for Oahu, we filed an abbreviated rate case for Maui Electric at the end of December in which we offered to forego the opportunity to request additional base revenue. Our bank delivered solid financial results in 2014 in a challenging regulatory and interest rate environment. We produced strong loan growth of 6.8% while improving credit quality and maintaining healthy capital level. And finally, we are making good progress on our utility merger and bank spinoff. Our pending combination with NextEra Energy brings together 2 industry leaders in clean energy. With NextEra as a partner, we are confident we can accelerate Hawaii’s clean energy transformation. And we are also confident our bank can and will thrive as an independent public company upon spinoff. Hawaiian Electric has, indeed, put Hawaii on the leading edge of clean energy nationally. We continue to make significant progress towards integrating more renewable energy to achieve the state’s clean energy goals to reduce Hawaii’s dependence on oil as quickly as possible. Renewable sources met 21% of our customers’ energy needs in 2014, far outpacing Hawaii’s 2015 required renewable portfolio standard of 15% and more than double the 9.5% achieved in 2010. We continue to lead the nation in the integration of customer-sited solar. 12% of our residential customers have rooftop solar, an estimated 20x the national average. As of December 31, approximately 50,000 of our customers have rooftop solar, an increase of over 10,000 customers compared to 2013. For the year 2014, our use of renewable generation has displaced about 2 million barrels of oil when compared to our oil use in 2008, which would’ve caused our consumers approximately $259 million in imported oil. Let me now update you on further utility development since our third quarter earnings call. First, we have continued our collaboration with other stakeholders in Hawaii’s energy future. In particular, we worked closely with SolarCity, the Electric Power Research Institute and the Department of Energy’s National Renewable Energy Laboratory to test advanced inverters for performance on circuits with high amounts of solar. This work has helped identify mitigation steps that will help integrate more distributed solar to our grid. Using these test results, we collaborated with inverter manufacturers in the solar industry to finalize new inverter settings to expedite approvals for customers to install their PV projects. As another example of such collaboration, Enphase Energy recently announced the remote upgrading of hundreds of thousands of smart microinverters installed in Hawaii. This should allow rooftop solar systems to be more tolerant when a problem occurs on the grid, which, in turns, helps improve the stability of the overall grid. Building on these solutions, we proposed a new program to increase rooftop solar as part of our utilities’ transformation to deliver a more affordable clean energy future for Hawaii. As I mentioned, we’re already the national leader in rooftop solar by far, and it’s very important for us to ensure rooftop solar can continue to grow in a way that is safe, sustainable and fair for all customers. In January, our utilities filed for approval of a new transitional distributed generation program. Under the transitional proposal, new applicants would be credited for their solar kilowatt hours at a rate that more closely approximates the cost to produce that energy instead of the full retail rate received by current NEM customers. However, existing net-energy metering customers and those with pending applications would remain under the current program. Under our utilities’ proposal, the transitional distributed generation program would remain in effect while the PUC works on a permanent program to be developed through a collaborative process involving stakeholders from across the community, including the solar industry. In conjunction with the transitional DG program and with updated inverter settings to help ensure continued safe and reliable service, our utilities will also modify their interconnection policies, more than doubling the solar threshold for neighborhood circuits to 250% of daytime minimum load, up from 120% of daytime minimum load today, and allowing for more than 90% of Oahu circuits to connect without a longer and costly interconnection study in most cases. We’ve requested approval of the new program within 60 days of filing or by March 20, 2015. The Consumer Advocate has requested that the PUC hold our utilities’ motion in abeyance until further review can be conducted. To further support even more customers adding solar on high-penetration circuits, Hawaiian Electric will also be doing several pilot projects for non-export/smart export PV battery systems with local and national PV companies. These projects will provide real-world operational experience on their capacity to increase solar interconnections on high-penetration circuits. The company is also developing a community solar program as another option to help make the benefits of solar available to more customers, including those who may not be able to or want to install rooftop solar such as renters or condo dwellers. In addition, our utilities are seeking to add grid scale renewable projects, and we have submitted for PUC approval a total of 7 renewable projects, aggregating approximately 220 megawatts and at an average price of approximately $0.14 per kilowatt hour, which is lower than the 2014 average avoided energy costs. These solar projects can benefit all utility customers with lower and less volatile prices and help support Hawaiian Electric’s goal to lower and stabilize customer electric bills. Regarding the Schedule B decoupling review proceeding, the parties submitted responses to the PUC’s information request on December 22. The proceeding is currently pending a PUC order, which will delineate for the parties the set of issues to address in the post-hearing opening brief. Post-hearing opening brief would be due 3 weeks from the date of the PUC order, and post-hearing reply brief would be due 2 weeks after the filing of the post-hearing opening brief. On December 30, 2014, we filed with the PUC the abbreviated rate case for Maui Electric for no change in base rates similar to what we did in June for Hawaiian Electric. We are able to do this as our utilities are aggressively focused on managing costs by pursuing operational and financial efficiencies and other steps, such as deactivation of our older oil-fired power plants and refinancing debt at lower rates. And finally, on January 16, 2015, Governor David Ige appointed Randy Iwase to be the PUC Chair, replacing Hermina Morita who resigned on January 12. His appointment is subject to confirmation by our state Senate. Turning to Slide 5. Allow me to update you on the pending merger with NextEra Energy and the spinoff of our bank. The closing of the merger is subject to various conditions including the approval of holders of 75% of the outstanding shares of HEI common stock, the receipt of all required regulatory approvals from, among others, the Federal Energy Regulatory Commission, the Federal Communications Commission and the Hawaii Public Utility Commission. For the bank spin, we are working with the Federal Reserve Board. On January 8, NextEra Energy filed with the SEC a registration statement on Form S-4, which is subject to SEC review. Once the Form S-4 becomes effective, we can seek shareholder approval of the merger, and we anticipate holding a vote this spring. On January 29, Hawaiian Electric and NextEra Energy filed a joint application with the Hawaii Public Utilities Commission, requesting approval of our proposed merger. The Form 10 for the bank spinoff is now being finalized, and we expect to file it by early March. Overall, we are making good progress and targeting to close both the spin and merger by year-end. I’ll now ask Jim to cover Hawaii’s economy and then our financial results and outlook for the economy. James A. Ajello Thanks, Connie. On Hawaii’s economy, 2014 was the third consecutive record year for both visitor arrivals and expenditures, which were up 1.3% and 2.3%, respectively, from 2013 and still robust after many years of strong growth. 2014 arrivals reached 8.3 million, and total spend was at $14.7 billion. Statewide unemployment remained low at 4% in December of ’14 and 3.4% in Honolulu County compared to 4.7% a year ago for the state and significantly below the current national unemployment rate of 5.7% as of January 2015. Hawaii real estate activity remains strong with the median sales price for single-family homes on Oahu increasing 3.8% in 2014 over 2013. However, the number of closed sales was slightly down by 0.9% year-over-year. The December 2014 Oahu median single-family home price was at $690,000. Construction activity reflected by the value of private building permits increased 21.9% in 2014 compared to 2013, driven by the increase in commercial and industrial new projects, additions and alterations. The University of Hawaii Economic Research Organization has estimated that Hawaii will save $1.4 billion over the span of a year from the decline of petroleum prices if recent prices are sustained. Overall, we expect to see continuing growth in Hawaii’s economy in 2015 supported by the construction industry, steady performance of the tourism industry and petroleum prices. As shown on Slide 7, 2014 GAAP earnings per share were $1.64 and in line with our 2014 EPS guidance range of $1.60 to $1.67. Excluding merger-related expenses, core earnings per share were $1.68, up $0.06 on a comparable basis versus $1.62 per share in 2013. Pace of earnings in 2014 can be skewed more towards the first 3 quarters of 2014 with fourth quarter 2014 earnings lower than the prior 3 quarters due to the timing of expenses. As shown on Slide 8, HEI’s 2014 GAAP consolidated ROE was 9.6%. Excluding merger-related expenses, HEI’s 2014 core consolidated ROE was 9.8% versus the comparable 9.7% in 2013. On Slide 9, utility earnings were $138 million in 2014 compared to $123 million in 2013. EPS of $1.34 exceeded our earnings guidance range of $1.30 to $1.33 per share. The detail of variances are shown on the slide, and I’ll highlight just a few. In 2014, on an after-tax basis, the most significant year-over-year net income drivers were: higher net revenues, primarily due to $29 million in higher recovery of additional infrastructure investments and operating costs; $3 million refund to Maui Electric customers in 2013 due to the 2012 final rate case decision and order. This was partially offset by $1 million in lower earnings from lower fuel efficiency performance of our operating units. Higher net revenues were partially offset by higher depreciation, higher interest expense, including lower revenue balancing account interest income, the favorable deferred tax adjustment recorded in 2013 and higher O&M expense. O&M expense was $3 million higher after tax or about 1% higher compared to last year. However, excluding the unanticipated Tropical Storm Iselle expenses, which were $4 million pretax, and the consulting expenses associated with our energy transformation plans, which were $8 million pretax, O&M expenses for 2014 would’ve decreased by approximately $4 million on an after-tax basis, driven by the following pretax items: $8 million for grid modernization programs, cost for smart grid installation; $4 million for the upgrade of our customer information system, partially offset by $9 million of lower customer service expenses; $5 million lower overhead expenses due to the reduced scope of work; and then $5 million in savings from the deactivation of generating units. Overall, we were able to limit our O&M expenses to less than inflationary levels. At the bank, net income for the year was $51 million in 2014 compared to $58 million in the prior year. EPS of $0.50 was firmly in line with our guidance range of $0.47 to $0.52. The most significant drivers of the decline from 2013 after tax were: $3 million in lower interchange fees due to regulatory caps attributable to the Durbin amendment; $3 million in declines of mortgage banking income related to the decline in mortgage refinancing volume; and $3 million in higher provision for loan losses, primarily due to reserves allocated for loan growth. The 2013 provision was low due to the release of reserves associated with the sale of the credit card portfolio, which was partially offset by $3 million in higher net interest income as contributions from loan growth more than offset for lower yields on loans. Now focusing on the utility. Slide 11 shows the utility’s actual ROEs for the year ended 2014. The consolidated utility ROE of 8.4% improved from 8% in 2013, reflecting higher earnings in 2014, topping the guidance range of 8% to 8.3%. The majority of the 2014 increase is driven by higher recovery in infrastructure investments and operating costs. Over the last quarter, we also experienced better-than-expected fuel efficiency in our generating units, enabling us to come in slightly higher than the guidance range. Turning to Slide 12. This slide reflects the cost of oil for Hawaii versus crude oil prices. As you can see from the slide, oil prices in Hawaii have declined starting in December of — September of 2014. With the cost of oil, including purchase power and taxes representing over 70% of customer bills, the average cost per barrel of fuel in the fourth quarter of 2014 declined by about 8% from the third quarter of 2014. From September of 2014 compared to early February of 2015, the average consumer bill on Oahu has declined by approximately 20% from about $219 to $177 per month, a 4-year low. Even with the recent decline in fuel oil prices, we are still firmly committed to LNG as it provides the added benefit of meeting MATS compliance requirements while avoiding costly or alternative solutions. We continue to be focused on replacing oil with renewables as quickly as possible in order to achieve the state’s clean energy goals to reduce Hawaii’s dependence on oil. I’ll now discuss the bank. Turning to American Savings Bank on Slide 14. American continued to deliver solid profitability metrics, which were generally in line with its targets and peers’. We have achieved a competitive return on assets of 95 basis points for 2014. With our ongoing efforts to enhance our products, service and risk management capabilities, we produced strong loan growth of 6.8% in 2014 in line with our mid-single-digit loan growth target and better credit quality. Our net loan charge-off was 1 basis point in 2014, beating our target of 7 basis points, and that is extremely low relative to our peers. Our 2014 net interest margin of 3.62% came in at the high end of our guidance range of 3.5% to 3.6% as loan portfolio repricing due to the low interest rate environment slowed in the latter part of the year, and higher fees and interest were recognized due to the payoff of certain commercial loans. Overall, the bank continues to maintain its low-risk profile, strong balance sheet and straightforward community business banking model. On Slide 15, our net interest margin of 3.65% in the fourth quarter of 2014 was 3 basis points higher than the linked quarter. Our interest-earning asset yield improved by 2 basis points, primarily attributable to interest and fees related to the payoff of certain commercial loans and slower amortization of premiums associated with mortgage-backed securities in our investment portfolio. Our liability cost of 22 basis points was 1 basis point lower than the linked quarter. We anticipate continued net interest margin compression, as new pricing on loans continues to be lower than our portfolio rates, albeit at a smaller — at a slower pace. On Slide 16, we showed the declining trend in noninterest income in 2014, which is primarily driven by lower mortgage banking income related to the decline in mortgage refinancing volume and the gain on sale margin compression and lower fees from other financial services primarily related to the Durbin amendment’s rate cap on interest — on interchange fees. The gain in prior year ended related to the sale of the credit card portfolio. For the full year, the $10.9 million pretax decline compared to 2013 was driven by $5.4 million in lower mortgage banking income, $4.1 million in lower interchange fees driven by $5 million lower rates due to Durbin, partially offset by higher volume and $2.3 million in gain from the sale of credit card portfolio in 2013. These were partially offset by $1.6 million in higher gain sale of securities. As a result of prudent risk management practices and the healthy local economy, credit quality has improved. 2014 net charge-off ratio was a very low 1 basis point compared to 9 basis points in 2013. Provision for loan losses in 2014 was $6.1 million, an increase of $4.6 million compared to 2013, primarily due to reserves allocated for growth in the loan portfolio. The 2013 provision was unusually low due to the $1 million release in reserves in 2013 related to the credit card sale and improvement in loss rates, which has since stabilized. The allowance for loan losses was 1.03% of outstanding loans at $45.6 million at year-end compared to 1% at the end of the linked quarter and 0.97% as of the prior year-end. On Slide 18, American’s nonperforming assets ratio of 0.85% is 3 basis points lower than the end of the third quarter and lower than the 1.2% at the end of the fourth quarter last year and remains better than its high-performing peers. This is consistent with our improved credit quality, effective credit management and strong loan growth. Slide 19 illustrates American’s continued attractive asset and funding mix relative to our peer banks. American’s December 31, 2014, balance sheets stacked against the last complete available data set of our peers, which is at September 2014. 96% of our loan portfolio was funded at low-cost core deposit versus the aggregate of our peers at 90%. In 2014, total deposits increased by $251 million or 5.7%, which helped fund our strong loan growth while maintaining a very low cost of funds of 20 basis points in the fourth quarter of 2014, 15 basis points lower than the median of our peers. American remains well capitalized with a leverage ratio of 8.9% at year-end, tangible common equity of 8.3% and total risk-based capital of 12.3%. In 2014, American paid $36 million in dividends to HEI while maintaining healthy capital levels. Now I’ll address HEI’s outlook for 2015. Utility’s updated 3-year capital expenditures consisting of both foundational and transformational investments is forecast to be between $1.1 billion and $2 billion. Our foundational investments represent the core investments needed to continue to deliver safe, reliable and efficient service to our customers. They include projects to replace aging infrastructure, to improve reliability, connecting or upgrading customer connections and improving our internal infrastructure to be more efficient and effective. Many of our transformational initiatives depend upon external factors, which could impact our ability to execute strategic plans. Our application for approval of the Schofield Generating Station is at the PUC, and we expect to file PUC applications for battery storage, LNG and smart grid in 2015. For 2015, we expect rate base growth in the range of 3% to 5% on our 2014 ending rate base of $2.7 billion. As American prepares for life as an independent publicly traded company, it remains focused on its core banking business, growing loans and deposits and generating fee income by providing an attractive value proposition to customers. In 2015, the bank is targeting mid-single-digit loan growth in order to offset the continued impact of declining yields. The bank expects loan growth generally consistent with current portfolio mix but somewhat faster growth in the consumer and business banking and its — for its asset quality profile to remain strong. Work continues on the bank’s plan to consolidate its personnel and management footprint to its new corporate campus. This will allow the consolidation of teammates from 6 different locations to enhance culture and collaboration. The bank continues to focus on cost management and core operation, as its fund — as it funds critical initiatives for long-term growth, and total noninterest expense will be higher in 2015 due primarily to higher pension costs. Overall, the bank expects to continue to deliver strong profitability metrics. HEI begins 2015 with a strong capital structure with 52% consolidated common equity to total capitalization. Our 2015 holding company financing plans include approximately $50 million settlement of the equity forward, the dividend reinvestment plan remains closed for original issuance throughout 2015, an issuance of $40 million of additional debt for the remainder of the holding company needs is assumed in 2015. On December 4, following our merger announcement with NextEra, Moody’s affirmed its ratings of HEI. Fitch placed HEI on ratings watch positive and noted that it will likely resolve the rating watch upon completion of the transaction and could upgrade HEI by one notch, given its proposed ownership by a higher-rated company. S&P also placed HEI on credit watch with positive implications and issued a subsequent report on January 26, 2015, stating the ratings of HEI and its subsidiaries are on credit watch with positive implications because of the proposed merger and higher-rated — with higher-rated NextEra Energy. There have been no changes to the bank credit ratings or outlooks. Based on our current environment, but excluding any merger-related expenses, we are initiating 2015 earnings guidance in the range of $1.64 to $1.74 per share. We expect utility earnings growth will be 2015 EPS range of $1.30 to $1.35 and bank EPS in the range of $0.50 to $0.54. Based upon the revised CapEx plan and 51% common equity capitalization target, we expect all of our 2015 equity needs to be satisfied through the existing equity forward. At the utility, our guidance assumes no changes to the decoupling model, including Schedule B issues to be addressed and the pending decoupling docket. We assume utility O&M to be up approximately 2% compared to 2014 levels as we continue to execute our strategies, which are not currently recovered in rates and associated with clean energy transformation. We also assume fuel efficiency consistent with rate case levels and related heat rate deadband. However, changes in system demands could cause fuel efficiency to fluctuate outside the deadband. We assume rate base growth of approximately 3% to 5%, and overall, we expect 2015 utility ROE of 8% on a GAAP basis. At the bank, we expect mid-single-digit loan growth, which we expect to be more than offset with the effect of lower yields on net interest income. Net interest margin between 3.45% and 3.55% as we expect yields on our loans to continue to decline, albeit at a slower rate. We expect a slight improvement in noninterest income, a growth in fee income from other financial services. Net charge-offs is expected to remain low at under 0.1%. Provision is expected to be in the range of $5 million to $8 million, slightly higher than 2014 due to additional reserves for loan growth. Overall, we expect return on assets to be about 95 basis points. Connie, I’ll now turn the call back over to you. Constance Hee Lau Thanks, Jim. In summary, our utility is a leader in the industry in integrating renewable and distributed generation. Together with our regulators, policymakers and other stakeholders, we are making Hawaii a leader in clean energy. As we continue to transition to a clean-energy future, our utility continues to be focused on customer choice and affordable and equitable distributed costs for all of our customers. Our bank continues to be a solid performer and will continue to focus on its core banking business, targeting mid-single-digit loan growth and strong credit quality. Overall, HEI’s business model continues to provide our company with the financial resources to invest in the strategic growth of our company while supporting the continued stability of our dividend, which we have paid for over 100 consecutive years. This week, we announced that our board maintained the quarterly dividend of $0.31 per share. Our dividend yield continues to be attractive at 3.7% as of yesterday’s market close. And finally, as our PUC application outlined, joining with NextEra Energy as a partner will help strengthen and accelerate Hawaii’s clean energy transformation. Plus, we are confident that after its related spinoff, American Savings Bank, as a new publicly traded entity, will remain a strong community bank for Hawaii poised to generate shareholder value. And with that, we look forward to hearing your questions. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from the line of Paul Patterson with Glenrock Associates. Paul Patterson – Glenrock Associates LLC A couple of things. I mean, we’ve had some coverage of the governor’s comments. Some legislation’s been introduced regarding municipalization and increased renewable goals and what have you. And there’s a new PUC Chair who’s concerned about, among other things, the number of vacancies and unfunded positions. And there’s also a poll that’s come out that sort of indicates that maybe customers, or at least those who are polled, don’t have a complete view as to the value that’s being provided by the merger. And I’m just wondering, you know, it’s all sort of been in the last month, and I know that it’s been moving. You guys have obviously been filing things, and a lot of stuff has been happening sort of concurrently. But I am just sort of trying to get a sense as to how you feel about sort of the game plan of sort of getting this thing through and making people feel more comfortable with the proposed transaction. And is there a risk that this could drag out longer — this approval process because of the vacancies and just — the review process might take longer because there’s only so many people to do the job kind of thing. I mean, if you could just sort of address that sort of. Constance Hee Lau Sure. Paul, let me just start with the poll that you cited and just give you a little more clarity as to the timing of that, because you really did state it right that the poll was saying that people needed more information about what the combination would bring in terms of advantages for customers. And it’s quite understandable why it came out that way because the poll was actually done before the filing of the application with the Public Utilities Commission that actually outlined the benefits for customers in the form of a 4-year stay-out for increases in base rates and also the foregoing of the increases in O&M that we would normally get through the decoupling mechanism, and that was the quantified savings of about $60 million. So that information was actually not out in the public at the time that the poll was done. And then overall, I think to your question, it’s really in the very, very early stages, and I think most of the statements that have come out from almost everyone, whether it is the governor or our legislators, have been about needing to just make sure that the transaction is really scrutinized carefully to ensure that it is going to be in the interest of the customers here in Hawaii. I’m not sure I can tell you much more than that at this point because I say it is quite early in the process. That application was only filed, what, just a few weeks? James A. Ajello January 29. Constance Hee Lau Yes, January 29, not very long ago at all. And as to the staffing levels at the Public Utilities Commission and its Consumer Advocate, I think unfortunately, in a small state like ours, we always have lived with those shortages of resources. But there have been commitments to try to bump up those resources to deal with all of these issues before our commission. They’ve been pretty stretched for the last few years largely because Hawaii has this very aggressive public policy position to move the state to renewable energy and to get off of oil. Operator The next question comes from the line of Charles Fishman with Morningstar. Charles J. Fishman – Morningstar Inc., Research Division Yes, just a follow-up on Paul’s question. So the Hawaii PUC is still what you expect to be the last approval. Constance Hee Lau The last — yes, we actually have a whole series of approvals. I guess, what I would say, Charles, is that, that’s going to be one of the big approvals that we need to get and, of course, the other one is the shareholder approval. Some of the other so-called approvals like the Federal Reserve Board may not come until just before the bank spin. Charles J. Fishman – Morningstar Inc., Research Division Okay. So I mean — but the PUC is what drags this to year-end. I mean, because obviously, your shareholder vote is in the spring, so you’ll know up or down then. Constance Hee Lau Yes, it is the process that takes the longest period of time. Charles J. Fishman – Morningstar Inc., Research Division Okay. Maybe that was a better way to phrase it. And then just the $0.06 per share difference between core and GAAP, I mean, if I’m reading the last page right and part of the problem here could where the page break was, does the — the entire $0.06 was due to the merger. Correct? Constance Hee Lau Yes, and it is $0.04. Charles J. Fishman – Morningstar Inc., Research Division $0.04 in the fourth quarter but $0.06 for the full year or am I reading that correctly? James A. Ajello Yes. Charles, yes. Jim Ajello. $4.9 million represents the difference all together, and some of the expenses were incurred in the third quarter and some in the fourth quarter. So I cited that there was $1.64 versus $1.68. Some rounding brings you to about $0.05. Charles J. Fishman – Morningstar Inc., Research Division Okay. And then Connie, I was intrigued by your comment about the community solar for apartment buildings. Could you elaborate on that, exactly how that would work? Constance Hee Lau Sure. And actually, since Alan is here, maybe I’ll let him answer that question because as we’ve been going out into the communities there’s been quite a bit of interest in that community solar, and particularly in Hawaii, because we don’t have a whole lot of land. So we do have a lot of condominiums. Not everybody’s got a roof. Alan M. Oshima Yes. So we have, as Connie mentioned, a lot of people in high-rises or apartment dwellers, renters, nonprofits who rent premises are interested in getting some of the benefits of a lower bill but really don’t have a rooftop to install rooftop PV. We’re looking at some solar grid farms that would be offered to the public to purchase designated bill credits as a part of the savings that they could accrue. The bill credits would then follow them from place to place. It wouldn’t be tied to the real estate that they’re currently located at. So this affords more people to get clean renewable energy as a part of their bill reduction. It won’t be 1 for 1 as is with solar, but the upfront investment would not be as great as well. So there’ll still be a good payback, and we’re looking to install the first pilots with PUC approval sometime this year. Charles J. Fishman – Morningstar Inc., Research Division That’s interesting. I sincerely hope you’re new owner continues to treat Hawaiian Electric as a solar laboratory for the world. It’s real interesting. Alan M. Oshima Thank you. Constance Hee Lau Yes. I think they’ve said that’s one of the reasons that they were interested in Hawaiian Electric is because so much is going on here. Operator And your next question from the line of Nick Yuelys with Gabelli & Company. Nicholas D. Yuelys – G. Research, Inc. Congrats, again, on the merger. Just one quick question on the 2016 CapEx, can you just walk us through why it’s about $300 million lower than what you filed in the PSIP? Constance Hee Lau Okay. Tayne is going to answer that. Tayne S. Y. Sekimura Yes. So basically, what we did from — using the PSIP sort of as a baseline, there has been a number of changes, and we had a number of updates to our forecast. And they would include things like looking at battery energy storage and after understanding our needs, re-scoping those types of projects. We looked at probability of executing on our projects, given the schedules, and we’ve flipped some projects out of the 2016 time frame. So those are just sort of general comments about an update from what we filed in August. Operator Your next question comes from the line of Sachin Shah with Albert Fried. Sachin Narendra Shah – Albert Fried & Company, LLC, Research Division I just had a couple questions on the regulatory approvals. I just saw the amended S-4 being filed, but I didn’t see any updates on the regulatory approvals, all of them specifically, and if they were filed and when some of the waiting periods may be ending. I know you were talking about the PUC, but just curious to see if there’s an update on that. Constance Hee Lau Sure. So what’s filed — the first document that was filed was the S-4, and so we’ve just received some comments from the SEC the process is that we need to work through those with the SEC, and then they will declare that statement effective. And as we mentioned, we’re expecting that we would be able to work through the comments and obtain the effective dates so that we could go forward sometime this spring with the vote for shareholders. The second document that was filed, and that was just a little less than 2 weeks ago, was the application with the Public Utilities Commission. As you noted, we talked quite a bit about that. There has been no schedule that has been issued around that very recent filing. In addition, we have filed with the Federal Energy Regulatory Commission and also the Federal Reserve Board. And those have, again, just been filed, I guess, within the last week. Jim? James A. Ajello Correct. Constance Hee Lau So they’re pretty new as well, and then Hart-Scott-Rodino is a waiting period that will go now for the next few months. James A. Ajello Yes, HSR — it’s Jim — HSR has a waiting period once filed. And the approval, assuming it comes, has a 12-month shelf life. So you want to stage the filing and hopefully, the approval of that to be fresh enough to complete the transaction once it’s consummated and the PUC approval. Sachin Narendra Shah – Albert Fried & Company, LLC, Research Division Okay. So as far as the HSR, that has been filed. So if that’s the case, then… James A. Ajello It’s not been filed. HSR has not been filed. Sachin Narendra Shah – Albert Fried & Company, LLC, Research Division Okay. Any idea when you may be expected to file that, Jim? James A. Ajello We’ll need a little more line of sight on the rest of the filings in the approval process because, as I mentioned, that it has a shelf life associated with it, and so we’ll want to make sure… Sachin Narendra Shah – Albert Fried & Company, LLC, Research Division Okay. So you don’t want to do it too early because you want the process to kind of procedurally move forward, and then strategically, you want to file it so you’ll have that window. James A. Ajello That’s correct, and by the way, both partners to the — or parties to the merger file an HSR. Constance Hee Lau And given that the 2 utilities are 5,000 miles away, no, we’re not expecting that Hart-Scott-Rodino would be the critical item in all the approval process. I guess, I should mention one other filing, and that is something called a Form 10 filing, which we also need to make with respect to the bank side of the transaction, and that is the document needed in order to spin the bank. That filing, we would expect to make within the next few weeks. Sachin Narendra Shah – Albert Fried & Company, LLC, Research Division Okay. So the path to completion, again, it seems with these various filings, have been made or yet to be made is really just the PUC for the most part. Is that — and obviously, the Form 10 for the spinoff, that’s an important part as well. Constance Hee Lau Yes. It’s really the PUC approval and the shareholder approval. Sachin Narendra Shah – Albert Fried & Company, LLC, Research Division Okay. The shareholder approval, as you mentioned, shareholder vote, we’re potentially looking kind of like a April-May time frame. Constance Hee Lau Yes. Sachin Narendra Shah – Albert Fried & Company, LLC, Research Division Okay. Then it all comes down to kind of procedurally waiting for the PUC later in the year. Constance Hee Lau Yes. Operator And there are no questions at this time. [Operator Instructions] And I show no additional questions in queue at this time. Constance Hee Lau Okay. Well, thank you, all, very much for joining us on the call today. And if you have any follow-up questions, please feel free to contact Cliff. Operator Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.