Hawaiian Electric Industries Inc (HE) Q3 2020 Earnings Call Transcript

Good morning, and welcome to the Hawaiian Electric Industries, Inc. Third Quarter 2020 Earnings Call. All participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Julie Smolinski, Director of Investor Relations. Please go ahead.

Thank you, Eli. Welcome, everyone to Hawaiian Electric Industries Third Quarter 2020 Earnings Call. Joining me today are Connie Lau, HEI President and CEO; Greg Hazelton, HEI Executive Vice President and CFO; Scott Seu, Hawaiian Electric President and CEO; Rich Wacker, American Savings Bank President and CEO and other members of senior management. Our press release and presentation are posted in the Investor Relations section of our website. As a reminder, forward-looking statements will be made on today's call. Factors that could cause actual results to differ materially from expectations can be found in our presentation, our SEC filings and in the Investor Relations section of our website. Now, Connie will begin with her remarks.

Aloha, everyone, and mahalo for joining us today. We hope you are safe and well. I have been deeply impressed by the dedication of our employees and the resilience of our customers and communities, as we all adapt to the ongoing challenges of COVID-19. Our core strengths continue to serve us well in these unprecedented times. That includes our long history of providing essential services for the state of Hawaii, strong liquidity, stabilizing utility regulatory mechanisms, our bank's conservative approach to risk, its low-risk loan portfolio and strong capital position. In the third quarter, our financial stability enabled us to continue helping our customers, our economy and our communities, and again, to deliver solid financial results: net income of $65 million and earnings per share of $0.59 compared to $63.4 million and earnings per share of $0.58 in the same quarter last year. I'll start with an update on the virus and economic conditions in Hawaii, before turning to an update on our companies. Then, Greg will review our financial results and outlook. While there is still uncertainty regarding the course of the virus and the timing of economic recovery, we've seen some positive signs. First, daily new COVID cases are down significantly from the surge we saw this summer. The seven-day average of new cases is down to 92, with about a 2% positivity rate after a second stay-at-home order on Oahu, starting in late August. Oahu's local economy largely reopened in late September under a tiered framework. And since then, we've been able to move to the second tier, allowing more business activity. On October 15, Hawaii's tourism sector reopened with a program allowing domestic travelers with a negative COVID test to bypass the 14-day quarantine. Since then, we've seen an average of 5,600 arrivals per day, up from the roughly 2,000 a day that we saw before the 15th. Starting today, this program also includes travelers from Japan, and Hawaii is working to extend it to other countries. While the tourism reopening is encouraging, the timing of a sustained reopening depends on how the virus plays out. The federal government and military, our second largest economic driver, have maintained stability throughout the COVID period. Residential real estate values have also remained strong. Year-to-date September, Oahu single-family home prices were up 3.3%. And compared to the month of September last year, Oahu single-family home prices were up more than 13%, driven by low inventory and low interest rates. The latest forecast from the University of Hawaii Economic Research Organization, or UHERO, whose outlooks have informed our own estimates, projects Hawaii's economic recovery starting in 2021 and accelerating into 2022. Turning to our companies. Keeping customer rates down has been a central focus for our utility. That began before the onset of COVID and remains a core priority. Fortunately, customers have seen some bill relief this year. Lower fuel costs and a lower revenue balancing account component from higher-than-projected electricity sales last year meant that an Oahu residential customer using 500 kilowatt hours of electricity in October paid 13% less than in March. The commission has extended the suspension of disconnections for non-payment through year-end. We continue working with customers on repayment options and connecting them with services to help them through this time, including utility bills. Last month, the commission approved our settlement with the consumer advocate to not increase base rates in our Oahu rate case. In approving the settlement, the commission maintained Hawaiian Electric's current allowed return on equity of 9.5% and 58% equity capitalization, lifted the 90% cap on Schofield generating station project cost recovery, ended the 2017 Rate case customer benefit adjustments, and deemed the enterprise resource planning system benefits commitment to be flowed through to customers as part of the zero base rate increase. To help offset the lack of a base rate increase and deliver on our commitment to ramp up to $25 million in customer savings by year-end 2022, our utility is executing on its multiyear efficiency improvement program, which began earlier this year. While we pursue cost efficiencies, we're also pressing forward aggressively on our clean energy goals. We're on track to exceed the 2020 RPS milestone of 30% for the year. Since the RPS calculation divides renewable energy by sales, lower sales due to COVID temporarily pushed our RPS above 35% as of the second quarter. With electricity sales expected to increase in the fourth quarter, we expect RPS to moderate but still exceed 30% by year-end. In the next few years, we anticipate strong RPS growth from our major renewable energy and storage procurements. In the third quarter, we filed eight purchase power agreements for renewable energy and storage projects and two self-build storage applications as part of our stage two procurement. Two of the projects selected in that procurement are still under negotiation. Last month, the PSC approved the eighth final PPA from our Stage one procurement for a solar plus storage project on Maui. If all Stage 1 projects and the filed Stage 2 projects come online in anticipated time frames, they would add nearly 600 megawatts of renewable energy and 3 gigawatt hours of storage to our system between now and the end of 2023. This will help retire coal in Hawaii in 2022 with the expiration of one of our Oahu IPP contracts. The Stage 2 projects, together with our recently proposed Kahului Synchronous Condenser Project, will also help us retire one of our Maui fossil plants by 2024. We're also preparing an RFP for up to 235 megawatts of community-based renewable energy. Given the scale of our system, these procurements are significant. If you add up what I've just talked about, you get over 800 megawatts. That's on a system with a total peak load of just 1,200 megawatts on Oahu and 200 megawatts each on Hawaii Island and Maui County. While the timing for projects to come online can be affected by many factors, there is no question we're moving forward aggressively. As you know, we, the commission and many stakeholders have been working hard to align the regulatory framework with customer interest and Hawaii's renewable energy goals through the performance-based regulation, or PBR docket. The commission has kept the docket moving through COVID and appears on track for a December decision. The guiding principles are set early on in PBR, including maintaining financial integrity of the utility and the collaborative stakeholder-based approach the commission established have been consistent throughout the process. We've generally summarized areas of consensus and divergence on slide 30 of our deck. The commission's decision in order will confirm the way forward. The commission has been progressing other dockets, too, and just last week, approved a 50-year contract for Hawaiian Electric to own, operate and maintain the electric system serving the Army's 12 installations on Oahu. Turning to our banks. American Savings Bank continues its solid execution during a dynamic COVID-19 environment. Areas are returning to normal operations. We've reopened six branches we had temporarily closed. While low interest rates continued to compress net interest margin, in the third quarter, we were able to replace much of the prior quarter's spend on sales securities through core activities, including strong mortgage banking income and redemption. We remain focused on sound risk management, with the timing of a sustained tourism opening uncertain, ASP's third quarter results, again, reflect elevated provisions. We think we're well provisioned and continue proactively working with customers to understand how their financial health and outlook are affected by COVID. Cost efficiency is and will continue to be a focus, particularly in the current low interest rate environment. In addition to reducing COVID costs, we've also closed five branches with two more scheduled in December. Most of these had been temporarily closed earlier in the pandemic. We're continuing to roll out our new smart ATMs, providing more customer options and convenience. We've been impressed by how customers have conserved to manage their resources during this time. The majority of customers who sought initial loan deferrals are returning to repayment. While some customers and sectors are more impacted, overall, we're seeing low delinquency rates and continued strong deposit growth. For customers who received PPP loans, we're now working on forgiveness and have started submitting loans to the SBA for that process. We've continued to see robust adoption of our online and mobile banking services and high customer satisfaction with our digital offerings. And now, Greg will review our results for the quarter and our outlook.

Thanks, Connie. Turning to our third quarter results, consolidated earnings per share were $0.59 versus $0.58 in the same quarter last year. At the utility, timing and management of O&M expenses had a positive impact. At the bank, tighter lending margins and COVID-driven provisioning continued to affect results, while non-interest income from core activities improved compared to the linked quarter. While holding company loss is well in line with plan, we saw a modest increase due to lower income at Pacific Current and higher interest expense from higher short-term borrowing. Consolidated trailing 12-month ROE remains healthy at 9.4%. Utility ROE increased 80 basis points versus the same time last year to 8.4%. Bank ROE, which we look at on an annualized rather than a trailing 12-month basis, was 6.8% for the quarter, down from last year due to the economic impacts of COVID and a low interest rate environment. Turning to the next slide. Utility earnings were $60.1 million compared to $46.8 million in the same quarter last year. The most significant variance drivers were $10 million lower O&M expenses, primarily due to fewer generating unit overhauls, lower labor costs due to lower staffing levels, reduced overtime and elevated vegetation management work in the third quarter of 2019. The lower overhauls represented about $5 million of the $10 million O&M variance. Of the $5 million, $2 million was due to an elevated number of overhauls in the third quarter of 2019, and the remaining $3 million was timing as some overhaul work will be performed later this year or in 2021. We also had a $5 million revenue increase from higher rate adjustment mechanism revenues and a $1 million increase in major project interim recovery revenues for the West Loch PV and grid modernization projects. These items were partially offset by the following after-tax items: $1 million lower AFUDC as there were fewer long-duration projects in construction work in progress; $1 million higher savings from enterprise resource planning system implementation to be returned to customers; and $1 million higher depreciation due to increasing investments to integrate renewable energy and improved customer reliability and system efficiency. Looking at the drivers of the utility's financial performance for the rest of the year, with the commission's final decision in the Hawaii Electric rate case, our rates, cost of capital and equity capitalization are now set across all three utilities. Recall that we received a final decision in July for no base rate increase in the Hawaii Electric Light rate case and are not filing a request for a rate case for Maui Electric. The utility's multi-year efficiency program will help offset the lack of base rate increases and achieve the management audit customer savings commitment. Cost savings initiatives are well underway with additional efficiency opportunities to be identified. COVID-related expenses from March 17th to year-end are being deferred for the commission order we received in June. We've requested an extension of that deferral through at least June 30 of next year. We'll have to file separately for recovery at a later date. COVID-related costs have been $12.4 million to date, mostly related to bad debt expense. The suspension of customer disconnections remains in place until year-end. Lower fuel prices have been good for our customers with a typical 500-kilowatt hour residential monthly bill on Oahu in October was down $21 since March due to fuel price savings. With these savings, the utility may qualify for a reward under the fossil fuel cost risk-sharing mechanism. Based on year-to-date information, we're forecasting $340 million to $350 million of CapEx in 2020, down from $360 million communicated last quarter, primarily due to unexpected delays from COVID-19 and completion of some of our work at lower cost. Specifically, COVID-19 delayed our smart meter deployment, completion of a generating unit overhaul on Maui and impacted transmission structural replacement work when a helicopter contractor went out of business due to COVID-19. Fortunately, we were able to bring some of that work in-house and complete it at lower cost. We also saw some other delays related to permitting. We are maintaining our longer-term CapEx and rate base guidance in the 2021 to '22 period. We still expect CapEx to average approximately $400 million per year or about two times depreciation. While strategically important, we don't expect the recently approved Army privatization contract to have a material impact on annual earnings, which will depend on a number of factors, including the amount and timing of capital upgrades and capital replacements. We continue to expect the utility to self-fund its forecasted CapEx through 2020 via retained earnings and access to the debt capital markets. Turning to the bank on slide 12. American's net income was $12.2 million in the quarter compared to $14 million in the prior quarter. Although yield on earning assets continued to be impacted by the low interest rate environment, we had improvements in a number of areas, including record mortgage banking income, a record low cost of funds supporting net interest margin, increased fee income as we resumed certain fees suspended to help customers during the initial impact of COVID and lower noninterest expense. We continue to see elevated provisioning this year, given the ongoing COVID-19-related economic uncertainty. Provision was down slightly versus the last quarter, which included amounts for unfunded commitments. Improved noninterest income from core activities and expense controls were key drivers of bank net income during the quarter. As you may recall, we had a large one-time impact in the second quarter from $9.3 million in gains on sale of securities on a pre-tax basis. We were able to replace much of that amount through a combination of record mortgage production, generating mortgage banking income of $7.7 million versus $6.3 million last quarter, and resumption of previously suspended fees driving $9.6 million in fee revenue compared to $7.2 million last quarter. Expense controls also helped offset the second quarter's gain on sales. In the second quarter, we incurred $3.7 million in COVID-19-related expenses, consisting of additional pay to frontline employees, the payout of excess vacation days for employees unable to use vacation while working through the pandemic, purchases of PPE and sanitation supplies, employee meals to promote employee safety and support small business restaurants. In the third quarter, our COVID-19-related costs were down $3.1 million to $0.7 million, consisting primarily of cleaning and sanitation costs.

Overall, our companies continue to perform well during the pandemic. Our financial stability has enabled us to deliver value for all our stakeholders. In that vein, I'd like to close with a comment on ESG. ESG has been a focus for us for a long time. That's why we say ESG is in our DNA. We just didn't call it ESG before. We've long talked about the linkage between the health of our state and that of our companies. Our renewable energy transition is central to our company strategy, and we talk about it on every call, along with the evolution of our regulatory framework to support that transition. For our bank, key areas of focus include addressing affordable housing and financial fitness for our communities and customers, as well as economic diversification, and job creation. And you'll recall that Pacific Current was formed to advance sustainability through infrastructure investments here in Hawaii. We're formalizing our ESG approach, integrating it more deeply in our businesses, to the extent material to value creation. We published our first FASB-aligned report in September and plan to expand future reporting, to include TCFD-aligned disclosures. So look to hear more from us on ESG going forward. And with that, we look forward to your questions.

Our first question today comes from Julien Dumoulin-Smith with Bank of America.

Hey, good afternoon to all of you or good morning. First off, how do you think about sustainability of O&M savings going into next year, and frankly beyond? I mean, there's a question across a lot of utilities to you guys specifically. And in particular, can you talk about what has driven the $10 million year-over-year improvement on utility O&M, beyond just shifting out generation maintenance costs?

Yeah. Okay. Go ahead.

We will clarify the expected savings for next year, some of which we anticipate will be sustainable, including certain staffing reductions and efficiencies that have already been implemented. Tayne Sekimura will provide additional details on this matter and our outlook moving forward.

Hi, this is Tayne. Commenting on the O&M, as we see it, our cost efficiency initiatives have included things like managing staffing levels, meeting our management audit commitments as well as to offset the no base rate increase for Hawaiian Electric. It also includes reduced overtime and higher productivity due to better planning, scheduling and coordination of work. So those sorts of activities are sustainable into next year. The other thing we're doing is we're engaged in our strategic sourcing efforts to bring down the cost of our goods and services. And that, too, will continue as we move on into 2021. We also look for other opportunities as we are working differently in a teleworking virtual environment. And have found different ways to get our work done. Some of the things we are looking at is how much office space we need, how big should our footprint really be, and the use of technology to be able to interact with one another, both inside the company and outside the company. So those are just some examples.

Yeah, excellent, okay, perfect and then, maybe related to that, if you don't mind, can you discuss the improvement in utility LTM, ROE? Obviously, it's improved here to 8.4 from 7.9 in prior. How do you think about this carrying forward, right? It kind of dovetails with the O&M?

Yeah. A big part of that improvement does relate to our lower O&M expenses and so that we're seeing that in our results to-date. Going forward, it's going to be really key for us to see what comes out of the PBR proceeding. And let me take you through some pieces. In our ROE chart, we have a breakdown of the ROE drivers there. If you look at some of the things like the customer benefit adjustment, is an example. In the Hawaiian Electric final decision, it was considered to be removed. And so we're going to stop accruing that amount of the customer benefits. And a very small amount will remain for Maui. Right now, it's about 40 basis points. And what will remain later would be just a couple of basis points for Maui. The other thing is for the ERP customer benefits, that was deemed to be removed from the Hawaiian Electric final decision. All that will remain there is roughly 10 basis points for Maui Electric and Hawaii Electric Light. So those two items come from the Hawaiian Electric final decision in order. The last piece is the RAM revenue adjustment. The accrual right now is delayed to June 1. But in the PBR docket, there is general consensus of the parties that this lag should be removed. Of course, that is subject to the PUC's decision in PBR that we expect in December. In addition to that, as we look forward at PBR, our cost containment and cost management initiatives will continue and be expected as we operate our company. So that's going to be really key, our continuation of cost management efforts to close the ROE gap.

Yes. Sorry, if I can squeeze in one more, just real quickly to finish out the thought. So your full year 2020 guidance remains unchanged, ultimately. Why does utility earnings remain in the bottom half then? And is that implicit that some of this pushed-out generation maintenance spend is in 4Q, or is there something in the tail end of this year? And is there any update you can provide around ASB earnings based on the provision loss to date? Just again, trying to square that against the guidance and where you're trending.

Okay. I can speak to the utility. What is coming up in the fourth quarter, as mentioned earlier, you heard about the timing of some of our generating unit overhauls and some station maintenance work that will be performed in Q4. So there will be some elevated O&M there. In addition to that, we also have other expenses that were timing-related related to things like what we're doing in the community-based renewable energy, CBRE. And we had some IT software and hardware purchases that were delayed to Q4. So we'll see those O&M expenses elevated.

Yes. And Julien, if I can add, the original guidance way back actually was when we were looking at having the Oahu rate case. And of course, that's the one that's been settled at a no base rate increase.

Yes. So as we go into the fourth quarter, we still have to offset the no base rate increase costs. And it is a range, Julien. So obviously, there's some movement within the range, but still some uncertainty going into fourth quarter around timing of certain expenses and when and if they materialize. So we've kept it within the lower half of that range, but I think we're positioned well going into the fourth quarter. And then on a consolidated basis, you did see the improvement in our pre-tax pre-provision guidance from the bank as well, which was an improvement in debt position going into the fourth quarter now just seeing how the provisioning plays out during that period as we reopen the economy.

Got it. Excellent. A sort time and patience.

Thanks for the Friday afternoon discussion.

Yes, we thought we were going to hear from Eric, not you. Thank you.

How are you doing?

Hi, Paul.

Hi, Paul.

So I apologize for not being able to completely – could you just – why the higher pre-tax pre-provision bank income? What's exactly driving that?

Let me turn that over to Rich. They've had a great quarter, but go ahead.

Hi, Paul, as Greg mentioned in the comments, we've been able to run pretty well on our expenses and manage those down. We've got some unique things that are related to COVID that come and go. But those are tighter. During the initial stages of the lockdown, we did things like waived all ATM fees and put in bigger sort of grace periods for late fees and things like that. During the third quarter, we began to feed those back in as we tried to normalize operations again. So you're seeing those things come up. You've also seen really strong production on the mortgage side. We're number two in the market so far year-to-date on the production of mortgages, and that's played through as we work to balance how much we want on the book versus how much we sell, and when we sell those gains come through that mortgage banking line. And so those are the main factors.

So just to clarify, when you provided your guidance last quarter, were you more cautious regarding fee income and expenses, as you mentioned, and did the outcomes turn out better than expected, or is that the right way to think about it?

We were uncertain about how the phase-in of the fees would impact the return to pre-COVID levels and the market strength in the mortgage sector. Each area demands our effort to exceed our expectations, especially since we have significant provisions to cover. The team is putting in a lot of hard work.

Yeah. How is the loan deferrals? Can you remind us how those are accounted for? If there's any sort of provision associated with that if it's past 90 days or something, or is there any yet?

We have adopted what we believe is a conservative stance on loan deferrals. For any customer, particularly on the commercial side, who has requested a payment deferral, we have categorized that as a special mention loan due to the potential weakness indicated by their request for assistance. This has contributed to an increase in our provisions. When we classify a loan as criticized, it necessitates a higher provision. The main difference lies in how we manage deferments; we freeze the loan in its current delinquency status—whether it is current or 30 days past due—until the payment period resumes. The change in classification has the most significant impact.

Okay. And then turning to the utility. First, on PBR, is there any potential for a settlement as we approach the December time frame here?

Hi, Paul. This is Scott Seu from Hawaiian Electric. This is a PUC-driven proceeding. Where we are in that proceeding is it's in front of the PUC and basically ready for their decision-making. The PUC is considering all of the filings and statements of position. Evidentiary hearings took place in September, and all the parties have filed their post-hearing briefs. It's basically ready for decision-making, and that's expected in December.

Okay. In terms of your thoughts, it really depends on what we see with the PBR and everything else. I know you've worked on various aspects like base rates and settlements. How should we view the trajectory for total rates, considering everything happening? What are your expectations for total rates? Naturally, this is subject to change due to uncertain variables, but assuming fuel remains stable, where do you anticipate rates will trend over the next couple of years given your current rate base growth?

Hey, Paul, that's a little bit tough to answer, but maybe the way I can frame it is, at least, as far as the context of the discussions with the PBR docket, it appears that we will be retaining most of the recovery adjustment mechanisms such as for the fuel power purchase adjustment clause and some of those other recovery mechanisms. The commission is looking at possible adjustments to our major project interim recovery mechanism as part of the PBR docket. It's difficult for me to answer that question just because there are a variety of these moving parts. As you even reflected, fuel is going to be the biggest driver for the foreseeable future, even though we are working hard to wean ourselves off that. But that is the biggest driver of what the customers see in their bills.

Okay. Fair enough, and we'll see what happens in December. Thanks so much and have a good one.

Thanks, Paul. And Paul, I'd just add, remember going forward too, the performance incentive mechanisms are incentive-based so there will be benefit to customers. At the same time, there might be benefit to the company.

Hi. Good morning.

Hi, Jackie.

Hey, Jackie.

Hi. Just wanted to start on the risk rating, and understanding that you've taken a really conservative stance with how you're marking your special mentions. How is that going to have an impact as those get upgraded to watch and to pass? You had a really good decline in the level of deferrals in the quarter. So just wondering, number one, if borrowers are going back on to payment, how long you expect them to sit in the special mention bucket? And number two, how you would expect that to affect your reserve methodology as they do that?

Right. So Jackie, it's a great point. We look for about six months of sustained payment performance before we'd look at upgrading the accounts. So we think that's right now, given still the uncertainty about whether the recent opening will sustain and all that. So we will take some time and watch them. We don't want to jerk around the provision, moving them up and back down if there's a closing again. So we'll look over a couple of quarters.

Okay. So I would suspect that by the third quarter of next year, assuming that conditions continue to improve, we could be back to a lower level of special mention and you could have some potential reserve release associated with upgrades to offset any potential charge-offs that are coming through the pipe at that point. Is that a fair assessment?

From your lips to God's ears, I hope. The point that you're making is a really good one. It's important for people as they think about banking. The provision is for potential credit losses. If you think about what we're doing, we're providing for what we know is a difficult situation for our customers. The big increase in coverage that we've had this year is around the risky environment. We've got a lot of customers who have truly impressed us with how they've managed their resources during this time. But we got to see how it plays out. If they succeed, then yes, when those upgrade, we'll get those provisions back. We hope that these provisions don't turn into charge-offs, right? And that's the game. You've seen charge-offs have been relatively stable with our past. You haven't seen a surge in that. We're hopeful this scenario works out like you described.

Okay. Okay. And then turning to balance sheet liquidity. How are you thinking about that over the next couple of quarters, understanding that there are obviously a lot of factors that play inclusive of whether or not we're going to get more stimulus in the future.

Yes. We're cautiously optimistic that it continues to be as strong as it is. Our deposits have continued to build with customers. As we look at where they are, we're seeing it in both the consumer and commercial sectors. We know people will need to spend down, but we don't anticipate a large runoff over the next quarter or so. So strong liquidity is good. We're staying close to our customers. The commercial customers, our guys are with them regularly, understanding what their cash flow situation is and how they look. So right now, we would expect relatively consistent performance.

Okay. And then just lastly, in terms of loan growth, on a linked-quarter basis, you had good generation in CRE balances. Is there anything point-to-point that was unusual there, or was it just really solid growth in the quarter?

Yes. No. We have a terrific new leader of that CRE team that joined our bank earlier this year. He's just good at finding the right kind of deals. We have tended to be more heavy on construction-related projects. He's excellent at getting the long-term investor component of the portfolio growing, too. We're really prudent in this environment. We're sitting here saying that we're not interested in bringing somebody else's troubled asset onto our book. But as you know, we've also stressed how Hawaii real estate is a resilient asset. So we're being really selective. But when we see the deal that we like, we also want to support those deals and the customers associated with them.

Hi, good morning. I have a couple of questions. Regarding Oahu breakage, will that now follow a three-year cycle? And was there nothing in that settlement that allows for a return for three years?

So, Charles, the commission is no longer looking at the mandatory triennial rate case cycle because of the transition to PBR. That's why in the PBR framework, there's a multiyear rate plan, which is at five years.

Yes, I forgot about that. Okay. So, let's talk about CRO. I mean, on that one slide, I've lost it. You have the things that you briefed to, and I realize you're still negotiating this PVR. But on the left-hand side, as far as the agreed to things, can you maybe discuss that? It seemed like, as I look at that list, to eliminate the RAM lag, that's a real positive. Is there something else on that left side that I should be saying, wow, that's pretty good?

Charles, hi, this is Tayne. Yes. Again, as a reminder, this is a summary of the consensus and differences of the parties. It is subject to PUC decision-making. Yes, it is positive that the existing RAM lag should be removed because that's roughly 30 to 40 basis points.

Well, I know that's been a bottom in the past, so I thought that was good. That's on the left-hand side.

Yes, another positive aspect, although we need to observe the actual outcomes, is the potential to earn performance incentives based on the criteria set by the PUC. We need to evaluate how these mechanisms are structured and their feasibility. Additionally, I want to highlight the earnings sharing mechanism. The general agreement among the parties was that it should be adjusted to be symmetrical. Currently, we have an asymmetrical setup where earnings exceeding the allowed ROE are shared with customers, which offers some degree of protection for the company.

Yes, symmetrical would be good. Just one more thing. I think it was the last call that the Hawaiian Economic Research Organization, I guess this is where the number came from. The goal was to get back to a 50% level of tourism by the end of the year, which obviously would be testing program being delayed and the second wave here, I suspect that's optimistic. But you provided a lot of data from the Economic Research Organization. Is there any number like that that's comparable that I'm missing, or is that just something that they're not doing anymore? I thought that was really interesting to see just the level of recovery on the tourism.

Yes, this is Greg. On slide 3, we present data from the UHERO forecast, which is also available on the University of Hawaii Economic Research Organization website for public access. They project that there was a 74% reduction in tourism from pre-COVID levels in 2020, with a recovery anticipated to begin in the fourth quarter, aligning with trends we are currently observing. Looking at a base case, they forecast a 73-74% recovery starting from this lower base, with further improvements expected in 2022. The revised forecast suggests a gradual recovery that falls short of pre-COVID levels during the forecast period, but it remains a strong figure considering that we reached 10 million arrivals pre-COVID, which was a peak year-over-year in 2019.

Okay. Well, thank you. That’s helpful. That’s all I have. Thanks, and stay safe.

Okay. Thanks Charles.

Thanks, Charles.

This concludes our question-and-answer session, and I would like to turn the call back over to Julie Smolinski for any closing remarks.

Yeah. Thank you all for joining us today and for your questions. And with that, have a great weekend.

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