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Dividend Growth Stock Overview: MGE Energy Inc.

Summary MGE Energy provides electric and natural gas service to 300,000 customers in Wisconsin. The company has paid dividends for over a century and increased them since 1977. Since 2010, MGE Energy has compounded dividends at about 3%. The stock currently yields 3.2%. About MGE Energy MGE Energy (NASDAQ: MGEE ) is a utility company providing electric and natural gas service to nearly 300,000 customers across parts of Wisconsin, including the capital of Madison. MGE Energy’s assets include 885 miles of overhead electric distribution lines and over 2,600 miles of gas distribution mains. The company conducts much of its operations through multiple subsidiaries, including MGE (Madison Gas and Electric), MGE Power Elm Road, and MGE Transco Investment LLC. The company has its headquarters in Madison and employs nearly 700 people. (Note: For purposes of this article, when referring to the publicly traded company, I will use the term MGE Energy. Where I use the term “MGE”, I’m referring to the subsidiary.) MGE Energy reports its results in five distinct business segments: Regulated Electric Utility Operations, Regulated Gas Utility Operations, Non-regulated Energy Operations, Transmission Investments, and “Other”. The Regulated Electric Utility Operations segment is responsible for generating, purchasing and distributing electricity through MGE Energy’s wholly owned subsidiary MGE. The segment serves over 140,000 customers, 86% of whom are residential customers; the remainder are commercial or industrial customers. The segment generated slightly more than half of MGE Energy’s total net income in 2014. The Regulated Gas Utility Operations segment purchases, transports and distributes natural gas to nearly 150,000 customers in 7 Wisconsin counties. Like the Electric Utility Operations segment, the ratio of residential to commercial/industrial customers is 8:1. The segment generated about 20% of MGE Energy’s 2014 net income. The Non-regulated Energy Operations segment controls two MGE Energy subsidiaries: MGE Power Elm Road, LLC and MGE Power West Campus, LLC. MGE Power Elm Road owns an 8.33% interest in two coal-fired generating units and MGE Power West Campus owns a controlling interest in a cogeneration facility on the campus of the University of Wisconsin. Both subsidiaries lease their shares of the assets to MGE for its electricity supply needs. 24% of MGE Energy’s 2014 net income was generated by this segment. The Transmission Investments segment controls MGE Energy’s investment in American Transmission Company LLC. MGE Transco Investment LLC (a subsidiary of MGE Energy) owns 3.6% of American Transmission. Earnings generated by this segment reflect MGE Energy’s share of American Transmission’s earnings. Finally, the “Other” segment includes subsidiaries that are responsible for investing in companies and property that support the regulated operations of the other segments, and that assist businesses expand within central Wisconsin. In 2014, MGE Energy earned $80.3 million on revenues of $619.9 million. These figures were up 7.2% and 4.9%, respectively. The bulk of the income growth came from a decrease in Electric Utility segment expenses. Net income from the Gas Utility segment was up 4.8% due to a colder winter as compared to 2013. Earnings per share were up 7.4% to $2.32, giving MGE Energy a payout ratio of 50.9% based on the annualized dividend of $1.18 per share. The long-term debt-to-equity ratio decreased in 2014 to 37.5% from 39.5% in 2013 due to a nearly 7% increase in shareholders’ equity. The company’s earnings are driven heavily by seasonal weather. With a return to more normal temperatures in 2015 (the winter of 2014 was unusually cold in MGE Energy’s operating area), the company’s earnings were down 34% in the 1st quarter and flat in the 2nd quarter. Combined earnings in the 1st half of 2015 were 92 cents a share, down 24% from $1.21 in the 1st half of 2014. The company has a share repurchase program to support the direct share and dividend reinvestment programs, but not to specifically reduce the number of outstanding shares. The company is a member of the Russell 2000 index and trades under the ticker symbol MGEE. MGE Energy’s Dividend and Stock Split History MGEE has compounded its dividend at about 3% since 2010. MGE Energy began increasing dividends in 1977. The company announces dividend increases in mid-August and the stock goes ex-dividend at the end of August. In August 2015, MGE Energy announced a 4.4% increase to an annualized rate of $1.18. I expect MGE Energy to announce its 40th year of dividend increases in August 2016. Like most utilities, MGE Energy increases its dividends very slowly, with annual increases in the low-to-mid single digit percentages. Over the last 5 years, the company has compounded its dividend at a rate of 3.1%. The dividend growth is slower over the long term, with 20-year and 25-year annual compound rates of roughly 1.6%. MGE Energy has split its stock 3 times in the last quarter century, each time 3-for-2. The stock split in January 1992, February 1996 and, most recently, in February 2014. A single share purchased prior to the first stock split would now be 3.375 shares. Over the 5 years ending on December 31, 2014, MGE Energy Inc.’s stock appreciated at an annualized rate of 17.72%, from a split-adjusted $19.90 to $44.99. This outperformed both the 13.0% compounded return of the S&P 500 index and the 14.0% compounded return of the Russell 2000 Small Cap index over the same period. MGE Energy’s Direct Purchase and Dividend Reinvestment Plans MGE Energy Inc. has both direct purchase and dividend reinvestment plans. You do not need to already be an investor in MGE Energy to participate in the plans. For new investors, the minimum initial investment is $250, or $25 if you sign up for 12 months of automatic investments. Follow on direct investments have a minimum of $25. The dividend reinvestment plan allows full or partial reinvestment of dividends. The plans’ fee structures are somewhat favorable for investors – the company picks up the transaction fee for purchases, but you’ll be assessed brokerage commissions on shares purchased on the open market. (There is no brokerage commission for shares purchased directly from the company.) When you go to sell your shares, you’ll pay a transaction fee of $15 plus the applicable brokerage commission. All fees will be deducted from the sales proceeds. Helpful Links MGE Energy’s Investor Relations Website Current quote and financial summary for MGE Energy (finviz.com) Information on the direct purchase and dividend reinvestment plans for MGE Energy Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Frontier Markets Index Issues: How Flawed Index Construction Is Distorting Perceptions Of The Asset Class

Summary A common complaint heard from Frontier Markets investment managers is the poor quality of the major indices that are designed to track Frontier Markets equities. The primary underlying cause of the problem has been, and continues to be, the use of market capitalization as the construction weighting methodology. This can contribute to lopsided geographic and sector weightings, which distort the risk and return characteristics of the equity market segment being considered. This article explores the nuances and flaws of two of the most prominent Frontier Markets indices, the MSCI Frontier Markets Index and the S&P Frontier Broad Market Index. It details the uneven geographic and sector concentrations found in these indices, root causes of these imbalances, as well as the implications such index construction has on return and risk. Frontier Markets Index Issues (click to enlarge) How Flawed Index Construction is Distorting Perceptions of the Asset Class Sean Wilson, CFA Brent Clayton, CFA Ha Ta A common complaint heard from Frontier Markets investment managers is the poor quality of the major indices that are designed to track Frontier Markets equities. Poor index construction is not a new issue for the global investment community. The primary underlying cause of the problem has been, and continues to be, the use of market capitalization as the construction weighting methodology (some indices use free-float adjusted market capitalization weighting methodologies, which suffer from the same issues). This can contribute to lopsided geographic and sector weightings, which distort the risk and return characteristics of the equity market segment being considered. Frontier Market indices suffer from additional weaknesses due to varying degrees of capital market development in constituent countries, which can magnify the distortions caused by market capitalization-based weighting methodologies. As Frontier Markets indices are used to formulate asset allocators’ return and risk expectations for the asset class and as benchmarks to measure and evaluate Frontier Markets investment managers, it is important that the nuances and flaws of these indices are identified and understood. D é j à Vu All Over Again … Over the past century, indices have risen in importance from rough barometers of equity market performance to structural components of passive investment strategies with allocations worth hundreds of billions of dollars. However, some of the most prominent indices have been distorted by the common practice of employing market capitalization to determine the weight of their respective constituents. With this approach, the larger a company’s market capitalization, the larger its weighting in the index will be. This approach is particularly sensitive to distortions from market bubbles because it exaggerates the weightings of those areas in the index which have been inflated. One of the most extreme examples of this occurred in the late 1980s and early 1990s in the MSCI EAFE Index, then the most popular benchmark for international equities. Japan grew from approximately 10% of the index in 1970 to over 60% of the index by the late 1980s. Investors in the US market saw a similar phenomenon appear in the S&P 500 when the technology sector grew six-fold to over a 30% weighting during the tech bubble at the turn of the century. Both events created indices that were less diversified and more precarious with concentrations in areas of the market that were most overvalued. Investment managers benchmarked to these indices faced a binary decision with respect to their weighting in these extreme concentrations, putting commonsense portfolio diversification at odds with the business risk of deviating substantially from the primary measuring stick of their performance. An investment manager’s singular call on Japan or the technology sector often, for better or worse, became the primary determinant of fund performance. With the retreat of the Japanese stock market and the bursting of the technology bubble, the distortions dissipated, but the underlying methodology issues remained. Today, Frontier Markets indices suffer from a lack of diversification with historically high concentrations in a few countries and an abnormally large weighting in the financials sector. This can be seen in the following charts of the historical concentrations of the two most prominent Frontier Markets indices, the MSCI Frontier Markets Index (“MSCI FM Index”) and the S&P Frontier Broad Market Index (“S&P Frontier BMI”): Chart 1: (click to enlarge) Source: MSCI Barra, S&P Dow Jones Indices On August 31st, 2008, the eve of the collapse of Lehman Brothers and the ensuing Global Financial Crisis, the MSCI FM Index and the S&P Frontier BMI held a whopping 65% and 58%, respectively, in the financials sector. Likewise, two countries, Kuwait and the United Arab Emirates, together accounted for 51% and 53% of the MSCI FM Index and the S&P Frontier BMI, respectively. One single country, Kuwait, with a population and land mass that are approximately one third and three fifths that of Belgium respectively, accounted for 35% of the MSCI FM Index and 39% of the S&P Frontier BMI. These concentrations are slightly less disproportional today, but there remains a roughly 50% concentration in the financials sector in both indices and 38% and 32% weightings in the top two countries of each, respectively. As discussed further below, the ramifications of such uneven weightings are significant. The root causes of such lopsided concentrations are twofold. First, a market capitalization-based weighting methodology makes these indices susceptible to market bubbles, which reward stocks and markets that go up with greater and greater index weights. Second, differences in development stages among countries can skew index sector weightings. Financial institutions are generally first to list on nascent stock exchanges. Banks are the foundation of any economy and are relatively more established than other industries in Frontier economies. They have business models that rely on shareholder funding due to international regulatory requirements, so it is not surprising that Frontier Markets indices have an overly large weighting to the financials sector. In addition, more developed Frontier Markets with large index weightings such as Kuwait that are held back from being upgraded to “Emerging Markets” status for technical reasons (foreign ownership restrictions, liquidity and size requirements) can skew overall index exposures due to the idiosyncratic nature of their underlying stock markets (e.g. a disproportionately large publicly-listed banking industry, a lack of energy and materials sector listings due to state ownership, a small consumer sector due to a smaller population). These two issues together serve to magnify the distortions in sector and country weightings. Implications for Return Expectations in Frontier Markets Analyzing historical returns of indices is a logical starting point for investors wishing to understand an asset class. Typically, historical returns are used as guideposts for setting investor expectations about potential future returns. With Frontier Markets, however, the lopsided concentrations in certain countries and the financials sector have dominated the historical performance of these indices and continue to mask the true underlying diversity of opportunities available in the over 50 countries with liquid Frontier Markets stocks. An argument sometimes voiced against allocating to Frontier Markets is the lower relative performance of Frontier Markets compared to traditional Emerging Markets following the Global Financial Crisis. Looking at the MSCI indices in Chart 2, while Emerging Markets appear to have quickly snapped back, Frontier Markets appear to have languished for several years and only recently have begun to experience a modest recovery. As of May 31st, 2015, the MSCI FM Index was still more than 18% below its August 31st, 2008 pre-Lehman value while the MSCI Emerging Markets Index was up 23%. Chart 2: (click to enlarge) Source: Bloomberg Looking at the three largest country weightings in the MSCI FM Index on August 31st, 2008 (collectively representing 66% of the index), however, reveals how greatly these index concentrations can influence index performance. Chart 3: (click to enlarge) Source: Bloomberg The MSCI Kuwait Index (Kuwait was 35% of the MSCI FM Index in August 2008) has, in fact, languished since the Global Financial Crisis. Plagued by low growth, high valuations, regional instability with the Arab Spring, and political gridlock domestically, Kuwait has not been a hallmark of the investment case for Frontier Markets in recent years. It remains 45% below its pre-crisis value. The United Arab Emirates market (16% of the index in August 2008) also languished for several years. However, the economy and market began a recovery in 2012, which shot the MSCI UAE Index up 276% from the end of 2011 to the country’s exit from the MSCI FM Index at the end of May 2014. Viewing the broader index’s performance from this perspective suggests that the tail may be wagging the dog much more than a superficial view would suggest. Trying to estimate an expected return for the entire asset class based on the historical returns of such a lopsided index is largely an analysis of its largest three country components – one of which is no longer even classified as a Frontier Market! While the demographic-led growth potential of these early-stage markets is one of the primary allures of Frontier Markets investing, these concentrations mask that case. The underlying drivers of Frontier Market index returns have not necessarily been the consumption growth stories that compel investors into the asset class. Take, for example, the case of Kuwait and Bangladesh as shown in Table 1: Table 1: Country Kuwait Bangladesh Difference MSCI FM Index Weighting 22.2% 2.4% 19.7% S&P Frontier BMI Weighting 17.4% 3.7% 13.7% Market Cap of Local Exchange (USD bn) 94 34 60 3M Average Traded Value (USD mm) 55 57 -1 Market Cap to GDP % 52.5% 18.0% 34.5% Number of Liquid Listed Companies 76 92 -16 GDP (USD bn) 179 187 -7 GDP Per Capita 44,844 1,179 43,665 Population (NYSE: MM ) 4 158 -154 Source: IMF World Economic Outlook, Bloomberg. Economic data from the IMF is for calendar year 2014. Market data is as of May 31st, 2015. “Liquid listed companies” is defined as locally-listed stocks with a 3-month average dauly traded value over $100,000 and median daily traded value over $25,000. Kuwait enjoys a 14-20% higher weighting in the MSCI FM Index and the S&P Frontier BMI than Bangladesh. Both markets have similar total GDP, a similar number of liquid listed stocks and similar market liquidity. Which of these two markets, however, appears to have more room for future growth and development? Bangladesh stands out with its massive population, low per capita GDP, and a lower market capitalization to GDP ratio. While these metrics simplify the nuanced growth stories for both countries, it is our view that Bangladesh has far more desirable “Frontier Markets” characteristics than does Kuwait. Nonetheless, the returns of the MSCI FM Index have been far more influenced by underlying drivers of the Kuwaiti market than those of the Bangladeshi market due to the index’s market capitalization-based weighting methodology. The returns of Frontier Markets equity indices are also affected by the annual reclassification of countries by market development status. As countries develop, they are reclassified as Emerging Markets, and as new Frontier stock markets open, they can attain “Frontier Markets” status. Countries can also be “demoted” from Emerging to Frontier Markets status, as was the case in MSCI FM Index with Morocco (2013), Argentina (2009), and Jordan (2008). (Argentina is also in the S&P Frontier BMI and currently accounts for 15% of the index. Astonishingly, unlike the MSCI FM Index, the S&P Frontier BMI includes local Argentinian shares that are impractical for foreigners to own due to capital controls.) Since its launch on December 18th, 2007, the MSCI FM Index has seen eight new countries join and three exit the index. The effects of country reclassifications on Frontier Markets index returns are most pronounced when countries are upgraded to “Emerging Markets” status. This can most recently be seen during the time period between MSCI’s June 10th, 2013 announcement that the UAE and Qatar would be promoted to its Emerging Market index effective June 1, 2014 and their exit, one year later, from its Frontier Markets index. At the time of MSCI’s announcement, both countries collectively accounted for almost one third of the entire MSCI FM Index. During this 12-month time period, the MSCI UAE Index and the MSCI Qatar Index rose 97% and 55%, respectively, before declining 24% and 22%, respectively, during the month of June 2014. As a result, the MSCI FM Index was up 20% during the first six months of 2014 with the UAE and Qatar accounting for a staggering 72% of that total return according to a recent report by FIS Group. An analysis of the historical returns of an index that has changed its composition so drastically and is constructed without diversification considerations masks the underlying opportunities in Frontier Markets and is a dangerous starting point for extrapolating future returns. Pick an Index any Index … To demonstrate how returns can vary depending upon the index and the weighting methodology it employs, we have constructed four custom indices using the same constituents as the S&P Frontier BMI (see Table 2). We also show the MSCI FM Index, which uses a different country universe than the S&P Frontier BMI. However, because it is less diversified with only 127 stock constituents versus 579 in the S&P Frontier BMI, the S&P Frontier BMI constituents were chosen to construct the custom indices. The equal-weighted index shown is derived by assigning each constituent of the S&P Frontier BMI an equal weight in the index. We also weighted the countries by population and by total GDP. For these two indices, we weighted the companies within each country by market capitalization. Lastly, we weighted each company by its size using annual sales instead of market capitalization. The point of this exercise is not to promote one Frontier Markets index over another since most have large concentrations, as Table 3 shows, but rather to demonstrate the variability of returns from reasonable indices constructed from the same constituents (excluding, of course, the MSCI FM Index, which has its own constituent universe). Table 2: Source: MSCI Barra, S&P Dow Jones, Business Monitor International, Bloomberg, LR Global Table 3: Source: MSCI Barra, S&P Dow Jones, Business Monitor International, Bloomberg, LR Global As Table 2 shows, yearly comparisons between the indices vary greatly with the biggest difference between the highest and lowest annual return of 24% occurring in 2009, where a sales-weighted index outperformed the MSCI FM Index by the largest amount. Likewise, the boost the MSCI index received from the removal of UAE and Qatar in 2014 can be seen in its outperformance in 2014 (The S&P Frontier BMI also removed these two countries in 2014, but not until September after both markets had fallen from their peaks at the end of May. Other weighting differences also influenced the variant returns). As the table shows, while there is a broad range of historical returns from which an investor can choose to help formulate future return expectations, each index comes with different biases and shortcomings. In addition, given the limited amount of historical data (under a decade of “live” index results), it is hard to argue that any of these indices can be used to anchor future return expectations (S&P Frontier BMI inception is 10/31/2008 and the MSCI Frontier Markets Index inception was on 12/18/2007). Implications for Manager Evaluation Flawed indices also obfuscate manager evaluation when used as benchmarks. For example, it is common for investors to separate an investment manager’s return attribution between stock selection and allocation versus the benchmark. This attribution analysis is an attempt to better understand the source of the manager’s returns and validate the consistency of the manager’s professed style. If returns are mostly coming from geographic and/or sector allocation, then a top-down style of investing is assumed. If returns are being generated from individual stock selection, a bottom-up style is inferred. In the case of Frontier Markets indices where there is a huge weight to financials, however, it is highly likely that Frontier Markets managers will never be overweight this sector and will most likely underweight financials in the interest of common sense diversification. Any underweight in one sector by definition implies an overweight in another sector or sectors. Does this mean the Frontier Markets manager is making top down strategic decisions to sector allocation or simply employing common sense diversification? An all too familiar binary decision is forced upon managers with regard to how closely to match the concentrated index exposures. Implications for Risk Expectations in Frontier Markets Just as return expectations in Frontier Markets are clouded by the flawed Frontier Markets indices, so too are the risk expectations for the asset class. With the birth of Modern Portfolio Theory in 1952 (Markowitz), investment risk became defined as the standard deviation, or volatility, of returns. If the historical returns are sampled from a flawed index such as one of the major Frontier Markets indices, this risk measure is also distorted. In a previous LR Global white paper (“Risk in Frontier Markets: Overcoming the Misperceptions.” May 2014) we examined the riskiness of Frontier Markets. Using the Modern Portfolio Theory definition of volatility, we analyzed Frontier Markets risk by calculating the standard deviation of individual Frontier Market country returns. Using ten years of rolling three-year weekly US dollar returns, we found that the median standard deviation of the Frontier Market country returns were consistently less volatile than Emerging Markets country returns and surprisingly less volatile than Developed Markets in six out of ten years (see Chart 4). Chart 4: Source: Sean Wilson, Brent Clayton, & Ha Ta (2014). “Risk in Frontier Markets: Overcoming the Misperceptions.” LR Global White Paper. However, it is also worth considering a different mindset of risk that does not assume investors are perfectly rational and that markets are efficient, as Modern Portfolio Theory requires. The booms and busts of individual Frontier Markets, the relative lack of institutional investors and research coverage as well as the opaque nature of these immature markets suggest that Frontier Markets are inefficient. Thus, a different notion of risk may be needed. Warren Buffet, a disciple of Benjamin Graham, explained why volatility is a poor measure of investment risk in a 1994 Berkshire Hathaway Annual Meeting : “For owners of a business – and that’s the way we think of shareholders – the academics’ definition of risk is far off the mark, so much so that it produces absurdities. For example, under beta-based theory, a stock that has dropped very sharply compared to the market – as had Washington Post when we bought it in 1973 – becomes ‘riskier’ at the lower price than it was at the higher price. Would that description have then made any sense to someone who was offered the entire company at a vastly-reduced price?” 15 In Frontier Markets, we also see volatility in individual markets and sectors as a potential source of opportunity and not risk. Fortunately, there are over 50 countries that comprise the broader Frontier Markets universe, and some of the biggest opportunities we have identified and exploited have been the result of extreme volatility in one or more countries. Would the Real ” Benchmark Risk ” Please Stand Up Thanks again to Modern Portfolio Theory, a new sub-category of risk was born. “Benchmark risk,” or, as it is more commonly known, “active risk” measures the amount of “risk” an investment manager takes by constructing a portfolio that is different than the benchmark it seeks to outperform. Studies conducted by academics and consultants over the past five years show that active managers who deviate significantly from their benchmarks have outperformed their more benchmark-like peers. According to researchers at Yale University, managers with an Active Share, one measure of active risk, of greater than 80% beat their benchmarks by 2.0% to 2.7% before fees. If, however, the benchmark is not diversified properly and constructed sub-optimally as current Frontier Markets indices are, then benchmark risk should really be literally thought of as just that, benchmark risk . In an asset class often assumed to be highly risky and not for the faint of heart, one might assume that managers should seek to minimize active risk. In light of these studies and the aforementioned flaws of Frontier Markets benchmarks, however, Frontier Markets managers should really be encouraged to seek out active risk. Conclusion Since Farida Khambata of the International Finance Corporation coined the term “Frontier Markets” in 1992, Frontier Markets have grown into a market segment distinct from traditional Emerging Markets with growing interest from investors and asset allocators. Much of this interest has occurred only over the past decade, which has accounted for the lion’s share of asset growth. It is important that investors interested in Frontier Markets understand the shortcomings of the major indices when considering an allocation or monitoring an existing allocation. In a subsequent paper, an alternative solution to existing Frontier Markets indices that will provide a better tool for monitoring and understanding the asset class will be discussed. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Hawaiian Electric Industries’ (HE) CEO Constance Lau on Q2 2015 Results – Earnings Call Transcript

Hawaiian Electric Industries’ (NYSE: HE ) Q2 2015 Earnings Conference Call August 10, 2015, 1:00 PM ET Executives Clifford Chen – Manager, Investor Relations Constance Lau – President and Chief Executive Officer James Ajello – Executive Vice President and Chief Financial Officer Alan Oshima – President and Chief Executive Officer Tayne Sekimura – Senior Vice President and Chief Financial Officer Analysts Paul Patterson – Glenrock Associates Charles Fishman – Morningstar Michael Weinstein – UBS Nick Yuelys – Gabelli & Company Andy Levi – Avon Capital Sachin Shah – Albert Fried Operator Good day, ladies and gentlemen, and welcome to the Hawaiian Electric Industries, Incorporated Q2 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for the conference call Mr. Cliff Chen. You may begin. Clifford Chen Thank you, and welcome everyone to Hawaiian Electric Industries second quarter 2015 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 followed by James, who will update you on Hawaii’s economy, our results for the quarter and outlook for the remainder of the year. Then we will conclude with questions-and-answers. In today’s presentation, management will be using non-GAAP financial measures to describe the company’s operating performance. Our press release and webcast presentation materials, which are posted on HEI’s Investor Relations website, contain additional disclosures regarding these non-GAAP measures, including reconciliations of 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 refer to 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 Lau Thank you, Cliff and aloha to everyone. Turning to our results announced earlier today, both our utility and bank are on track to meet our 2015 earnings guidance. At the utility, we have been working hard to advance the energy transformation plans that we filed with our commission last August, which would triple distributed generation including rooftop solar in Hawaii by 2030. Increased renewable energy to 65% by 2030 and also position us to achieve Hawaii’s new goal of 100% renewable energy by 2045. At the bank, we are working hard to deliver stable, profitable performance. Year-to-date deposit growth was strong and credit quality remained sound. On June 10, we achieved an important milestone for our pending banks spin and utility merger with HEI shareholders approving the merger with NextEra Energy with a 90% mandate from shares voted. In addition the process to obtain Hawaii’s Public Utilities Commission approvals and other approvals is underway. As many of you know the governor of Hawaii made public statements regarding the proposed merger following testimony that was filed on July 20 by interveners to the merger. In a press conference, the governor said the state is taking the position of opposing the merger as proposed. Later today, the consumer advocate is expected to file his position with the Public Utilities Commission that will complete filings by all parties and we and NextEra Energy will file our rebuttal to those positions on August 31. We believe that as we and NextEra Energy, provide more information and engage in additional discussions, the commission and others will conclude that our merger will provide significant benefits for our customers and the entire state and will further underscore Hawaii’s global leadership in clean energy. The governor also stressed the importance of having a partner who shares the vision of having 100% renewables for Hawaii, a new law, which is signed on June 8. Both Hawaiian Electric and NextEra Energy each have made clear that we are fully committed to achieving Hawaii’s new goal of 100% renewable energy by 2045. NextEra Energy has made it clear that it is committed to Hawaii and will bring a combination of renewable energy expertise, strong technological and operational knowledge, financial strength and access to capital necessary to support Hawaiian Electric’s plans. For our part, we believe NextEra Energy is the right partner for Hawaiian Electric to help us accelerate the achievement of the Hawaii’s clean energy goals. Given all the attention that has been placed on our utility transaction, I would be remiss in not mentioning our other major operating company, our bank American Savings Bank. American Savings Bank has been diligently preparing for their cross conditional spin off in parallel with our utilities – Public Utilities Commission approval process. Just as we firmly believe in the positive impact our utility merger will have on Hawaii the addition of American Savings Bank to the ranks of independent publicly traded companies based here in Hawaii will also provide significant benefits for our Hawaii customers and communities as well as for our shareholders. Back on our utility merger, last week the Hawaii Public Utilities Commission issued an order establishing the remaining timeline for the review of the merger transaction. We are currently in the discovery or information request phase of the PUC process. As I mentioned earlier, our consumer advocate is expected to file his testimony later today and we and NextEra will file our reply on August 31. All parties may then ask each other any final questions with all discovery scheduled to conclude by the end of September. Thereafter, the Public Utilities Commission will host a series of public listening session throughout the Hawaiian Islands starting in September and continuing through October 2015 to provide the public the opportunity to address the commission concerning the proposed transaction. Evidentiary hearings are scheduled to begin on November 30 and continue through December 16, 2015. Following the evidentiary hearing, the parties will file closing briefs and thereafter the commission is expected to issue its decision. Turning to slide four, in addition to the Hawaii Public Utilities Commission approval, the major items remaining for the merger with NextEra Energy and the spin off for our bank to shareholders are the following conditions. The receipt of all other required regulatory approvals from among others the Federal Communications Commission, the Federal Reserve Board related to the bank spin and expiration of the Hart-Scott-Rodino Act Antitrust period, which we filed just last Friday. I would now like to highlight the status of key utility developments. On June 29, our utility submitted their final statement of position in the distributed energy resources proceeding, which included new customer options and programs to support continued growth of rooftop photovoltaic systems in Hawaii. Recommendations included nation leading technical standard for advanced inverters, which will improve the integration of high levels of rooftop PV. New options for customers including battery equipped with rooftop PV systems, a pilot time of used rate to offer customers, the opportunity to save money by shifting their energy use to different times of the day, particularly when PV panels are most productive, as well as, a new pricing structure for new rooftop PV systems that more fairly distribute costs for operating and maintaining the electric grid. Hawaiian Electric continues to lead the nation in the integration of customer cited solar with 13% of residential customers having with rooftop solar year-to-date through June 30. Our customer adoption of solar energy in Hawaii is 20 times the national average. The utility proposals would provide greater access to rooftop PV, while helping ensure the longevity of programs in a way that protects reliability, safety and fairness for all customers. Ultimately, the Public Utility Commission will determine how and when any changes impact customers. Back in October 2014, Hawaiian Electric committed to clear a backlog of about 2,800 then pending net energy metering or NEM applications of which we have only 15 remaining. Since then, more than 15,000 additional applications have been approved to install or interconnect. As of July 15, a total of approximately 70,000 rooftop solar NEM applications have been approved by Hawaiian Electric, Maui Electric and Hawaii Electric Light Company for the five islands we serve. For our main islands of Oahu, this has resulted in close to a 30% of the single-family homes on a Oahu approved for solar PV, a very high penetration rate. On July 15, Hawaiian Electric Company proposed a community solar pilot program. If the PUC approves the pilot about 50 Oahu utility customers who don’t currently have access to rooftop solar will be able to enjoy the economic benefits of rooftop PV. Lessons learned from this pilot will help with the design of expanded programs under a community-based renewable energy tariff to be filed in October. On July 31, the PUC approved four major solar energy projects on Oahu, totaling approximately 137 megawatts, in time to meet the federal 30% tax credit, currently set to expire on December 31, 2016. The PUCs approval of these projects will provide all our customers by the end of next year with the lowest price of any solar electric city on Oahu. More than 30% lower than previous solar projects. On August 5 Maui Electric filed contracts subject to the Public Utilities Commission review and approval to purchase up to 5.7 megawatts of solar power at $11.06 per kilowatt hour. More than 30% of the electricity used in Maui County currently comes from renewable sources. So these contracts will take that percentage up even higher. Moving on to the demand response docket on the next slide. On July 28, the PUC issued an order advancing our Integrated Demand Response Portfolio Plan or IDRPP, appointing a special advisor to help with further development of the plans. The commission observed that the overall strategic and conceptual direction of the IDRPP is positive and notes that there are many welcome aspects to the proposed process and methodology. In other developments on May 28, the PUC issued an order related to our utilities revised annual decoupling filings. As a result the utilities filed revised 2015 annual incremental RAM revenues of $11.1 million. The tariff rates are effective from June 8, 2015 to May 31, 2016. In addition in the Public Utilities Commission, March 31, D&O on decoupling, the PUC also indicated that the utilities may apply for recovery of revenues for major projects, including baseline project grouped together for consideration as major projects above the RAM cap. The utilities are currently reviewing different projects and maybe submitting some for approval for recovery above the RAM cap. Finally under the required schedule for decoupling, we gave notice of our intent to file the Hawaii Electric Light Company 2016 test year rate case by December 31, 2016. Normally a general rate case using a calendar 2016 test year would be filed in the second half of 2015. However in light of the pending merger application Hawaii Electric Light has requested an extension of the date by which it must file its rate case to December 30, 2016. I’ll now ask Jim to cover Hawaii’s economy and then our financial results and outlook for the economy. Jim? James Ajello Thanks, Connie. I’ll begin by briefly commenting on Hawaii’s economy. June 2015 visitor arrivals on expenditures were up 6% and 4.4%, respectively from the same month last year and still robust after many years of strong growth. Year-to-date June 2015 visitor arrivals reached 4.3 million with total spending at $7.6 billion. Tourism is on a record trajectory in 2015. Statewide unemployment edged downward to 4% in June 2015, compared to 4.4% a year ago and still significantly below the national unemployment rate of 5.2% as of June. Recent Hawaii real estate activity remained strong during July 2015 with the median sales price for single-family homes on Oahu at $710,000, up 4% from last year and up 2.3% year-to-date July. This year through July, the pace home sales on Oahu is up 4.8%. Year-to-date May 2015 construction activity was reflective of value private building permits increased 41% compared to year-to-date May 2014. This increase is reflected by the increase in new residential, commercial and industrial projects. Overall, Hawaii’s year-to-date economic performances is being sustained by continuing strong activity in the construction and tourism industry and the University of Hawaii forecasters expect state GDP to grow 3.8% this year. As shown on slide eight second quarter 2015 GAAP earnings per share were $0.33. Core earnings per share which excluded merger expenses were $0.39 compared to $0.41 in the second quarter of 2014. Consolidated core net income was $0.9 billion higher than the prior year, but EPS was $0.02 lower due to the increased number of shares settled due to equity forward agreement. On slide nine, utility earnings were $32.8 million in the second quarter of 2015 compared to $34.2 million in the second quarter 2014, the detailed variances are shown on the slide and I’ll just highlight a few. Depreciation expense was $2 million higher, due to increasing investments for the integration of energy, improved customer reliability and greater system efficiency. Operations and maintenance expense was $1 million, higher compared to the prior year, largely due to higher consulting costs for our energy transformation plans, higher transmission and distribution costs and higher benefits expense. These partially offset by lower overhaul and smart grid costs in the second quarter of 2015. At the bank, net income for the second quarter of 2015 was $12.9 million, $0.6 million lower than the linked quarter, primarily due to $1 million in higher interest income, primarily driven by higher interest earning assets and fees, related to the early payoff of commercial loans. This was offset by $1 billion higher provision for loan losses and $1 million in higher non-interest expense, primarily to higher medical expense and the timing of professional fees and a reserve for unfunded commercial commitment. Compared to the second quarter of 2014, net income at the bank was $1.3 million higher primarily due to $1 million higher net interest income, due to higher average loan balances, $2 million in higher noninterest income, primarily from higher mortgage banking and fees on deposit products, these were partially offset by $1 million and higher noninterest expense in the second quarter of 2015, due primarily to higher pension and benefit expense. As shown on slide 10, HEI’s quarter ROE for the last 12 months was 9%, ROE contributions of 7.7% from utility and 9.6% from the bank. Slide 11, shows the utilities actual ROEs for the last 12 months, and consolidated core utility ROE of 7.7%, declined from 9% in June of 2014, primarily due to higher O&M and depreciation expense, partially offset by the RAM increase. On slide 12, you could see that American continues to deliver solid profitability metrics generally in line with targets. We have maintained a competitive return on assets of 93 basis points through the first half of the year. Year-to-date annual loan growth was 1%, and currently lower than our mid-single-digit loan growth target, mainly due to the timing of loan closures expected in the second half of the year. We continue to expect to achieve our target of mid-single-digit loan growth for the year. In the second quarter, loan growth was driven primarily by higher commercial market and residential loans and home equity lines of credit, offset by payoffs in the commercial real estate and consumer portfolios. Year-to-date net interest margin remains in line with expectations, benefiting from interest and fees related to prepays and payoff of commercial real estate and commercial and industrial loans. Year-to-date credit cost remain low, as our solid asset quality and strong risk management, resulted in year-to-date net charge-off ratio of 8 basis points, still very attractive relative to peers. Overall, the bank continues to maintain its low risk profile, strong balance sheet and straightforward community business banking model. On slide 13, our net interest margin was 3.52% in the second quarter of 2015, consistent with the linked quarter. Our interest earning asset yield declined by 1 basis point. Our liability cost of 22 basis points remained unchanged from the linked quarter. On slide 14, we show an improving trend in year-to-date 2015 noninterest income, which was primarily driven by higher mortgage banking income, as we have made a conscious decision to sell a larger portion of our low rate mortgage loan originations, increasing fee income on deposit liabilities, due to deposit related initiatives and increasing fee income on other financial products. Credit quality continues to be strong, reflecting prudent credit risk management and the healthy local economy. Second quarter of 2015 net charge-off ratio was 11 basis points, compared to 4 basis points in the linked quarter. The increase in that charge-off ratio was due to the charge-off of two commercial loans and higher charge-offs associated with growth in the consumer portfolio. Provision for loan losses was higher than the linked quarter and prior year quarter mainly due to the downgrade of one large commercial lending relationship and higher charge-offs. The allowance for loan losses was 1.04% of outstanding loans at $46.4 million at quarter end compared to 1.03% at the end of the linked quarter and 0.99% of the prior year end. On slide 16 nonperforming assets ratio was 70 basis points, 10 basis points lower compared to the end of the first quarter and lower than the 1.05% at the end of the second quarter last year. This is consistent with our solid credit quality and effective credit management. Slide 17, illustrates Americans continue to do attractive asset and funding mix relative to our peer banks. Americans June 30, 2015 balance sheet is stacked against the last accretive billable data sets for our peers, which is as of March 15. 99% of our loan portfolio is funded with low cost core deposits versus the aggregate of our peers at 88%. Year-to-date total deposits increased $180 million or 7.8% annualized, while maintaining a very low cost of funds of 22 basis points. 18 basis points lower than the median of our peers. American remains well-capitalized at June 30, with a leverage ratio of 8.8%, tangible common equity to total assets ratio of 8.2% and total capital ratio of 13.5%. In the second quarter, American paid $7.5 million in dividends to HEI, while maintaining healthy capital levels. Now I’ll address HEIs outlook for 2015. Utilities updated three year capital expenditures consisting of both foundational and transformational investments is forecast to be $0.8 billion to $1.7 billion. Our foundational investments represent core investments needed to continue to in deliver safe, reliable and efficient service to our customers. They include projects to replace aging infrastructure, to improve reliability, making or upgrading customer connections and improving our internal structure, to be more efficient and effective. Many of our major transformational initiatives depend on external factors, which could impact our ability to execute. Our applications for approval of The Schofield Generating Station is at the PUC and we expect to file applications for battery storage, LNG and smart grid later in 2015. For 2015, we expect rate base growth to be in the range of 1.5% to 3%. On our 2014 ending rate base balance of $2.7 billion. We would note that our long-term rate-base growth forecast is subject to PUC approval of our major capital expenditures. We are reaffirming HEI’s earnings guidance of $1.64 to $1.74 per share, excluding any expenses relating to the pending merger and spin off transactions. Last quarter we guided towards the low end of the range as a result of the early equity forward settlement of 4.7 million shares in March of 2015. The March 31 PUC decision and order on the Schedule B decoupling mechanism issues. The 2015 impact of the dilution in the early equity forward settlement is approximately $0.04 a share. At utility, there is no change to the EPS guidance. Guidance range that we are guiding towards the lower end of that range to offset the impact of the PUCs May 28 decoupling order, we are carefully managing expenses and we are revising our O&M guidance to approximately, a 2% decline compared to 2014 levels, instead of prior guidance of a 2% increase. As we have mentioned in the first quarter 2015 in our earnings release, we lowered the 2015 CapEx to $250 million from $420 million. And correspondingly revised our three year forecast range of $0.8 billion to $1.7 billion. In 2015 rate-based growth is now expected to be 1.5% to 3%. At the bank, there are no changes to the EPS guidance range and key assumptions. Connie, now I will turn the call back to you. Constance Lau Thanks, Jim. In summary, our utility is leading the industry and integrating renewables and distributed generation and continues to be focused on expanding customer options and lowering customer bills. 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. Last Friday our board maintained our quarterly dividend of $0.31 per share. The dividend yield continues to be attractive at 4% as of Friday’s market close and we have paid our dividend uninterrupted since 1901. Finally, we firmly believe that as the Hawaii Public Utilities Commission merger review process continues that we NextEra Energy have the opportunity to provide more information and engage in additional discussions with the PUC, the commission and others, should conclude that this merger can and will provide significant benefits for our customers and can help accelerate achievement of the clean energy future that we all want for Hawaii. And with that, we look forward to hearing your questions. Question-and-Answer Session Operator [Operator Instructions] Our first question comes from Paul Patterson with Glenrock Associates. Paul Patterson Aloha. Constance Lau Hi, Paul. How are you? Paul Patterson All right. How is it going? Constance Lau Good. Paul Patterson On the merger, and the governor’s comments and everything, what is the outlook for the potential for settlement versus a fully litigated case? Could you just give us a little bit of a flavor for that? Constance Lau I’m not sure I can really an answer that question Paul, because we’re still in that discovery phase and so there’s quite a bit of discussion that still needs to occur. I think as the Public Utilities Commission order that came out establishing the remainder of the process, it shows that a lot of that will occur this fall. I think as we go forward, we will probably get greater clarity in that question. Later today, CA needs to file, so we still need to see his testimony as well. Paul Patterson Sure. Okay, but I mean, so should we think, maybe after discovery processes completed that that might be a more likely time that settlement discussions could take place. Does that make sense? Constance Lau As you know settlement discussions can occur any time along the way, but certainly we would think that you we would at least want to see the initial positions of all the parties. Paul Patterson Okay. And then on the RAM order, in the PSIP. I guess, the changes that they made, my understanding was that that was pending the outcome of the PUCs review of the PSIP. I’m wondering what the schedule looks like regarding that and what we might see if you have gossip out there? Constance Lau Sure. And actually I think Alan is with us and perhaps I can turn that question over to him on the PSIPs. Alan Oshima Yeah, Paul, good morning. Paul Patterson Good morning. Alan Oshima Actually the RAM decoupling and the PSIPs, we don’t believe are connected at all. I think the PSIP will go on its separate track. It’s more of a technical discussion as to our power supply moving forward. The RAM is more financial based and operational, so I think it’s a transition year this year, it’s a first year that we’re having to comply with some of the new changes to the decoupling and we’re doing that, as we speak. Paul Patterson Okay. So I mean, my understanding that the RAM was being amended on interim basis, pending the outcome of PUCs review PSIP plans. I mean, I believe I read that in the order, I guess. I guess, so I’m wondering is is how do you think the – I mean, are you saying they’re not connected. I mean, that’s what I’m sort of a little bit confused on. James Ajello Capital expenditures are always connected and how the RAM decoupling will operate. Of course, will be somewhat affected by what PSIPs come up with. But they’re separate dockets and they’re not directly connected. Paul Patterson Okay. Just one final one here, a couple of things. You guys have pushed back the LNG stuff and oil prices are down. I’m wondering one of the reasons why you wanted to do the LNG was that you thought it would have environmental, but also substantial cost benefits for the ratepayers and that was an issue that I think the PUC was concerned about. How should we think about the pushback in the LNG importation? The lower price of oil in terms of what we’re seeing in terms of customer’s rates and stuff right now. Constance Lau So Paul, I think as with any major project and this would be quite a major project for Hawaii to be bringing another fuel source. You only have to take into account the changing conditions and as you pointed out there was a pretty significant change in some of the basic assumptions with the shift in the oil prices. So I think the way you want to look at it is that we are continuing forward, but we’ve got to make sure that bringing LNG into Hawaii still makes sense because at the end of the day, our ultimate goal is to bring it into lower cost for our customers. I think as you know, you know the commodity price with LNG is only a very small portion of the total cost to customers. A lot of it really is in building what I call the virtual pipeline across the water and it’s really the logistics that are most important in designing this project. So there’s been quite a bit of work that’s been going on in that regard in advancing the ideas on the most economical and efficient way to bring the liquefied natural gas into the state, while still assuring reliability of supply. So we are proceeding forward. I think we still believe that there is benefit for our customers, but we need to work through all of the changing analysis. I’ll ask Alan, if he’d like to add anything to that. Alan Oshima No. That’s totally correct. I mean, we’re looking at all the environmental benefits as well. I mean, it’s not a one-sided view of this, we have to look at it from all sides. Paul Patterson Sure. Any timeframe in terms of when might hear about what your revised analysis or any key date we should be thinking about? Alan Oshima Yeah, we’ll be I think making some decisions later this year and then probably moving forward. Depending on those decisions in early 2016. Paul Patterson Okay. Great. I’ll let people ask questions. Thanks a lot. Operator Our next question comes from Charles Fishman with Morningstar. Charles Fishman Thank you. If you’d give me some help here I think my notes on your status of the Public Service Commissioners might be out of date. Were all three commissioners, the current reserve appointed by the former governor? Constance Lau No, the Chair is new and was appointed by our new governor earlier this year. Charles Fishman And previous governor was Democrat as well, Connie. Wasn’t he? Constance Lau Yes, correct. Charles Fishman Okay. And then is Champley is still on and his term is up next year. Constance Lau Yes. Commissioner Champley is still on and also Commissioner Akiba. Charles Fishman Okay. Well, thanks for updating me. Just one other comment. I was at my church yesterday, an electrical engineer came up to me and said that the local utility in St. Louis had a meeting last week among electrical engineers and the integration of solar going on in Hawaii was a big topic of discussion. So you can pass on to your operation people that what they’re doing has some very far reaching input to other places. Constance Lau Thanks, Charles. As I mentioned in my comments, particularly on the use of the advanced inverters, we really are setting a tone for the nation and better use of that technology to help in the integration of rooftop PV. Charles Fishman Good luck on the merger. Constance Lau Thank you. Operator Our next question comes from Michael Weinstein with UBS. Michael Weinstein Hi, Connie, how are you doing. Constance Lau Hi, Michael, how are you? Michael Weinstein Good. My question, I don’t want to prejudice the merger outcome or anything like that. But I was just curious how separate is the spin of ASB from the merger process with NextEra? Is it possible that, for instance, and just really hypothetical of the Commissioner rejected, the merger would you still want to spin ASB in, could that still happen, given the tax implications? Constance Lau That we would go back to the analysis that we normally have had with respect to the separation of the two companies and we’d have to analyze it at that point in time. But at the moment the spin of the bank is cross conditional with the merger application, so that that would only occur if the merger goes forward. As you know a real key piece of the agreement with NextEra is that they will be paying the tax on the spin for our shareholders, so that our shareholders can receive the shares tax free, plus there is a great benefit to the bank in the step up of the tax basis. So it’s very positive transaction when it is combined with the merger with NextEra. If there is no merger, we’d have to analyze it as a standalone transaction. Michael Weinstein Got you. Okay, thank you so much. Constance Lau Sure. Operator Our next question comes from Nick Yuelys with Gabelli & Company. Nick Yuelys Congratulations on a good quarter. Constance Lau Thanks, Nick. Nick Yuelys I was just wondering following up on that last question, if all the regulatory approvals necessary for the bank spin off weren’t completed by the time the PUC approves the merger. What would happen? Constance Lau So let me just address that basic proposition because we really haven’t talked much about all the preparations going on at the bank for the spin. We are not expecting that the bank will not be prepared for a spin. As you know, we’ve got a very, very good team in at the bank. Many of whom have been with publicly traded companies previously. So we feel that there are quite well prepared to handle the bank when it spins off. And they have been having ongoing discussions with their regulators, the office of the Comptroller of the Currency and Jim Ajello has been having similar discussions with the Federal Reserve Board on behalf of the holding company. So we’re expecting that the bank will be quite well prepared for the spin. There may be some timing issues with respect to closing of quarters and years and that. But otherwise we believe the bank will be quite well prepared. Nick Yuelys Okay. Great. Then my guess is, do you need to make a filing with the FCC or how will that approval process work? Constance Lau On the FCC, the utility has some licenses with respect to communications that need to be transferred. So that one is while we mentioned that it’s one of a lot of little approvals that need to occur, but it’s not a major one at all. Nick Yuelys Okay. Great. Then my last one on the four solar project that the PUC approved at the end of July. Are those included in the CapEx numbers or are those some a little bit of upside to that? Constance Lau So those are actually by IPPs. Remember we had that so-called waiver group of projects where we went out for an RFP and so those are all by independent developers. Nick Yuelys Okay. Good, that’s all I have. Thank you very much. Operator Our next question comes from Andy Levi with Avon Capital. Andy Levi Hi, good morning. Constance Lau Hi, Andy. Andy Levi Just two quick questions, if as we look at your CapEx numbers and you included the transformational piece as well in ’16 and ’17, which CapEx in the $700 million range. What would and again, assuming standalone. What would the equity needs of the company be? Constance Lau So Andy, let me ask Jim to address that because we’ve looked at that, not with respect to the transformational capital, but the overall picture. So, Jim? James Ajello Thanks, Connie, and hi, Andy. So we haven’t yet sketched out the capital needs entirely yet. We’ll make sure that the utilities, regulatory ratio is about 58% equity, and 42%, 43% debt will be observed. I will tell you in general, I think there will be well under $200 million, but we haven’t put a fine point on that as yet. Andy Levi And that would be for both years or …? James Ajello I’m just talking about prompt year 2016. Andy Levi Okay. And then just on the RAM, could you just explain to us kind of what was changed in the order, the preliminary order relative to how the RAM worked before. Constance Lau Sure. Jim, I don’t know if, Tayne, is there, she’s probably the best to go into those details. Tayne S. Y. Sekimura I’m here. So basically the change in the RAM, what the commission did was, it focused on a target level of revenues and was based on what was included in the last rate cases and the last RAMs, and basically escalated it for inflation and that served as the cap for the RAM. And that’s a lot different from the previous RAM that was in effect, which actually went through a series of looking at, what was included in the rate case with escalated by the components of O&M, rate base and depreciation. So what commission did in the revised RAM was not make any differentiation between the RAM component, but just calculated based on a level of revenue. Constance Lau So, Andy, I don’t know, if you remember under the capital RAM they were looking at both the major projects and in the so-called baseline projects. The baseline projects went in at a historical five-year average. What they did was they just and talked about CapEx in total with as James said an inflationary adjustment similar to the inflator on the O&M side. Then said, we want to take a look at all the projects over that and review and that’s where we’re now looking at any projects that would be above that cap and reviewing whether to submit additional filings. They actually left the door open to design additional processes to process those amounts that are over the cap. Andy Levi And so with that being the case, the $11 million increase that you talk about in your handout, was that under the new method or the old method? Constance Lau That was the $11 million is under the new method. Andy Levi Okay and what was the increase the year before, I’m just curious, if you remember, I don’t if you have that number, but. So under the old method. James Ajello So, Andy, we’ll follow-up with you after the call. Andy Levi Yeah, that’s fine. And then just one last question, and I’ll let somebody else go. So under the new method, I guess, if I’m not mistaken the way you describe and having read a little bit about it, that would I guess, lead to more frequent rate filings, is that how we should view it, so you could recover your capital cost on more timely basis? Constance Lau No. Not necessarily. The RAM mechanism still provides for the triennial review, but what it may mean is that we may be processing some of the CapEx under mechanisms that are supplemental to the RAM. Andy Levi And that’s I guess, what they’re working on now? Constance Lau Correct. Andy Levi Perfect. Thank you very much. Constance Lau Yeah, that’s part of that transitional issue that Alan alluded to. Andy Levi I understand now. Thank you. Operator Our next question comes from Sachin Shah with Albert Fried. Sachin Shah Hi, good morning. Thanks for taking call. Just to understand the governor’s recommendation. From past precedence, is there any past precedence of the governor making such a recommendation and the PUC going along with the governor or going against the governor? I know that you’re going to make a compelling case, the companies are going to make compelling case against that recommendation and other opposition. But just trying to understand you know how much influence does the governor’s recommendation subjectively have on the PUC? Constance Lau Yeah, so this is a very new process within our Commission because while there has been some utility mergers throughout Hawaii’s history. They really have been much smaller than this proposed transaction. And particularly for this governor, this governor just came in this year, so everybody is really looking very carefully, but I’d say with new eyes at this particular transaction because they really haven’t been a lot of other transactions that one can point to. Sachin Shah Okay. So this is just new process, new ground for everybody and so the contentions as that we may be seeing are opposition comes along with the territory of this new process I guess. Constance Lau Yes, yeah. It’s part of the process and as the governor also said, it’s early in the process and he’s sure that there will be lots more discussion and that we haven’t heard the last on it yet. Sachin Shah Okay. Fair enough. Thank you. Alan Oshima Hi, Connie, this is Alan, it’s not a new process per sequential, it’s a process in this case, but there are regulatory frameworks for this from past transactions, that I think the electrical regulatory process will continue as they have described that in the filings. Constance Lau Yeah, thanks Alan. Operator And this is company operator; I’m actually showing no further questions at this time. Clifford Chen Thank you, Kevin. If there are no further questions, I would like to thank everyone for their participation today and have a good week. Bye-bye. Operator Well, ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.