[Good day, and Welcome to the Hawaiian Electric Industries, Inc. First Quarter 2021 Earnings Conference Call. All participants should be in only listen mode. Should you need assistance, please signal the conference specialists by pressing the star key followed by zero. After today's presentations, there will be an opportunity to ask questions. To ask your question, you may press star and one on your telephone. To withdraw your question, please press star two. Please note, this event is being recorded.] I would now like to turn the conference over to Julie Slanina, Vice President of Investor Relations. Please go ahead, ma'am. Thank you, Rocco. Welcome everyone to Hawaiian Electric Industries' first quarter 2021 earnings call. Here 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. Thank you, Julie, and aloha to everyone. Mahalo. Thank you for joining us today. We had a very strong start to the year with first quarter consolidated net income of $64.4 million and earnings per share of $0.59. Today's results were 93% and 90% respectively above the same quarter last year, and were driven by stronger earnings at both the utility and the bank. Hawaiian Electric benefited from continued savings from the robust cost management program we started last year. The savings will be delivered to customers in rates beginning in June, and along with other timing elements, we expect the utility to remain within the full-year guidance range we announced in February. American results in an environment that's challenging for bank profits. Our results benefited from a release of provision as we continue to conservatively manage credit in the improving Hawaii economy. As Greg will cover in more detail, we're increasing our bank guidance and consolidated HEI guidance for the year, reflect this improvement. We're seeing strengthening in the local economy as Hawaii continues to manage the virus well and the vaccine rollout continues. Unemployment declined to 9% in March. While still above normal average, it's headed in the right direction, having declined from a peak of nearly 24% a year ago. We've seen significant growth in tourism this year, and lately we've experienced multiple days where arrivals have approached pre-pandemic averages. At this point, almost all our arrivals are from the U.S. mainland, as the COVID situation and vaccinations abroad have been more challenging than domestically. Hawaii is strong and continues conservative portfolio mix at the bank. Year- to- date volumes are up 19% for single family homes and 53% for condos. Median prices are also up 17% to $950,000 for single family homes and 4% to $450,000 for condos. In its March outlook, the University of Hawaii Economic Research Organization accelerated its forecast for this economic recovery by 18 months, with the GDP now expected to rise 3.7% in 2021 and 3.1% in 2022. COVID-19 cases in Hawaii have remained far below the mainland. The seven-day average is lowest per capita among U.S. states as of May 6th. 40% of our residents are now fully vaccinated, and more than half have had at least one dose. While this is encouraging, we're mindful that we're still in the early stages of Hawaii's economic recovery, and there is still some uncertainty about the pandemic's course. At the utility, cost efficiency, our transition to the new PBR frame, and our clean energy future have been and continue to be our major focus. We and our stakeholders are all learning the new PBR framework, which is designed to align our interests as we work together to increase renewable energy and decarbonize our economy in affordable, reliable, resilient, and equitable. Our commitment to cost efficiency positions us well as we transition into PBR. The utility has been successful in implementing efficiencies and achieving savings to deliver on our management audit savings commitment and the customer dividend. We'll start returning these savings to customers through the annual revenue adjustment, or ARA, when PBR goes into effect June 1. Cost management will continue to be a focus as we opt for PBR. We've been working with stakeholders to finalize the new PBR performance incentive mechanisms or PIMs, as well as the scorecards and metrics we'll report on going forward. We are expecting the PUC to issue an order setting parameters of the new PIMs. As we said before, reaching our collective clean energy and decarbonization goals must be done in a way that is kākou, a Hawaiian word that means it takes everyone working together. We're working to bring projects from Hawaii's largest ever renewable energy and storage procurement online as soon as possible. We are fully committed to this effort, which is no easy task given the number of projects, the scale of this procurement relative to our small system, community considerations, land constraints, and the need to on ice related. We're actively working with independent power producers, government agencies, and other stakeholders to overcome obstacles to bring projects online faster. Last week, the PUC directed us to establish regulatory liabilities to track costs to customers resulting from delayed commercial operation of approved stage 1, stage 2, and CBRE phase 1 projects. While we do not believe we are liable for any amounts, we believe the PUC's intention may be to track rather than record costs before a determination is made. We will be seeking reconsideration or question. Last week, the PUC also approved with conditions our agreement for the Kahe Battery Energy Storage System, a standalone battery project that will help ensure reliability when the Oahu coal plant retires and enable integration of more renewable energy. While technically an approval, the order imposes conditions that may prevent us and the developer from moving forward with this project. The regulatory process allows us to raise our concerns to the PUC, and we will be filing a motion for reconsideration on Monday. Another key focus is accelerating the addition of more distributed energy resources, or DERs, and demand response. On May 3rd, we filed our recommendations to achieve this acceleration while underscoring the importance of equity and fairness in how the programs are designed. We're advancing programs to benefit all customers, including expanding our community solar program, proposing a rooftop rental program, and procuring aggregated grid services from DERs. Grid monetization is key to facilitating faster deployment and effective use of demand response and DERs. In March, the PUC approved our proposal to shift to an opt-out approach for advanced meters in targeted areas, allowing us to deploy advanced meters more quickly and thus enabling operational efficiencies and more advanced rate programs. Turning to the bank, American continues to perform well in a challenging environment. In the first quarter, we continued to have strong mortgage production and deployed an additional $150 million ASB CARES or Paycheck Protection Program loans to support small businesses in round 2 of that program. Year- to- date, that amount has increased to over $170 million. Record deposit growth, in large part driven by stimulus, continues to outpace lending opportunities in this early stage of Hawaii's economic recovery. We're taking a balanced approach to managing our portfolio, optimizing fee income and loan portfolio growth in a low interest rate environment. While net interest margin is still pressured, record low funding costs and balance sheet growth are helping grow net interest income consistent with our expectations. Our first quarter release of reserves for credit losses reflects the resilience of our customers, as well as the moderating credit risk environment as Hawaii's economy begins to recover. We continue to manage our reserves for credit losses conservatively. American has also continued its cost control efforts, leading to lowered expense in the first quarter, even as we invest in our anytime, anywhere banking transition. Improved profitability is also allowing the bank's dividend to HEI to increase. We're accelerating our digital transformation to enable customers to bank with us anytime and anywhere. Today, 44% of deposits are made through self-service channels such as ATMs and more than double pre-pandemic levels. We've seen increased customer satisfaction across all channels over that time. Enhancing our digital offerings to make banking even easier for customers. This includes providing new online financial wellness tools, upgrading our ATM fleet, strengthening our mobile app, expanding online capabilities, and opening new digital centers where our teammates will help customers with digital banking solutions. Now, Greg will discuss our financial results and our outlook. Greg? Thank you, Connie. Turning to our first quarter results, consolidated earnings per share were $0.59 versus $0.31 in the same quarter last year. Both the utility and the bank reported performance, reflecting the resilience of our companies and the Hawaii economy that has showed signs of a strengthening recovery. At the utility, earnings reflect lower O&M expenses from cost reduction efforts and delays on timing of generation overhauls, coupled with higher revenues from our annual rate adjustment mechanism, including timing-related charges for target revenue recognition to eliminate seasonality impacts. The bank benefited from the release of provision for credit losses as certain credits earned upgrades, and we saw stable credit trends and an improving economic outlook. While the holding company loss is well in line with plan, we increased charitable giving during the quarter, including a $2 million contribution to support our community through challenging times. Compared to the same time last year, consolidated trailing 12-month ROE improved 80 basis points to 10%. Utility ROE increased 160 basis, 9%, and bank ROE, which we look at on an annualized basis, was 16%. The utility outlook remains unchanged, however, the ROE expectations will be impacted by the management audit savings and customer dividend as O&M cost reductions that have improved earnings for the quarter are used to fund customer bill reductions under PBR. Regarding the utilities results, net income for the quarter was $43 million compared to $23.9 million in the first quarter of 2020. The most significant variance drivers were $10 million lower O&M expenses compared to the first quarter last year. There were three main factors that drove O&M lower. Lower staffing and efficiency improvements from the ongoing cost management program, timing-related items, including higher bad debt expense in the first quarter of 2020 related to COVID-19, which has since been deferred, and fewer generating facility overhauls, some of which will be performed later in the year. There were also higher costs in 2020 related to an increased environmental reserve and higher outside service costs to support the PBR docket and other customer service projects. In addition to lower O&M, we benefited from a $5 million revenue increase from higher rate adjustment mechanism revenues, a $4 million revenue increase related to timing of the recognition of target revenues during the year, which will have no net impact on 2021, and which is due to a change in methodology and seasonality for recognizing target revenues within the year. A $1 million lower enterprise resource planning system implementation benefits to be passed on to customers, and $1 million lower non-service pension costs due to a reset of pension costs included in rates as part of a final rate case decision. These items were partially offset by $1 million higher depreciation. Regarding the drivers of utility performance for the rest of the year, we expect no meaningful contribution from the Performance Incentive Mechanisms during 2021. We currently have approximately $22 million of COVID-related cost, primarily bad debt expense, accrued in a deferred regulatory asset account. We will continue deferring COVID-related costs through June. The moratorium on customer disconnections is in place through May 31st, 2021, and we continue to work with customers on extended payment plans and assisting with other bill assistance alternatives. We plan to file a separate application to seek recovery of costs once actual costs are known. We will also be filing requests for approval to continue deferring COVID-related costs beyond June 30. As mentioned, our O&M expense was positively impacted by the timing of overhauls. We expect some of these overhauls to occur later in the year, in line with our annual guidance. The utility's ability to achieve accelerated management audit savings commitment is an important driver of O&M expenses. The utility is on track to achieve the savings necessary to meet an annual $6.6 million commitment, which will be returned to customers starting June 1st. Utility capital investments for the quarter of approximately $60 million were lower than planned due to unexpected delays. Some of the delays were due to extended repairs being made at one of our substations, limiting work that can be done on other parts of the electric system. We also experienced additional design work required for T&D projects, COVID travel limitations, and meter deployment delays that impacted our grid modernization work. [Despite the delays, we still expect to achieve our utility capital investment plan for 2021.] We are maintaining the CapEx and rate base growth guidance we issued during our previous earnings call and still expect 2021 CapEx of approximately $335 million-$355 million, reflecting rate base growth of 4%-5%. Turning to the bank, ASB's net income for the quarter was $29.6 million, compared to $15.7 million last quarter and $15.8 million in the first quarter of 2020. The increase primarily reflected moderation of an elevated credit risk environment as Hawaii's economy begins to recover, and results benefited from a release of reserves for credit losses, which I'll discuss further. Net interest income reflects the impact of strong deposit growth, lower loan demand, and increased growth of our investment portfolio. Non-interest income benefited from strong mortgage origination and sales in line with plan, despite being below the prior year's quarter. Non-interest expense remained in line with plan as ASB continues to focus on strategic investments to drive efficiency and productivity. ASB's net interest margin compressed 17 basis points during the quarter. NIM was 2.95% compared to 3.12% in the fourth quarter of 2020. The low interest rate environment and record deposit growth each contributed to NIM compression. $3.1 million in fees from PPP lending and a record low cost of funds helped soften the pressure on asset yields. The average cost of funds was 0.08%, down one basis point from the linked quarter and 16 basis points from the prior year. We expect continued pressure from low interest rates and from excess liquidity due to strong deposit growth and lower reinvestment yields. Consequently, we're updating our NIM guidance range to 2.80%- 3%. We anticipate that balance sheet growth should still lead to net interest income in line with expectations for the year. Turning to credit. In the first quarter, the bank released $8.4 million in provision for credit losses, compared to provisions of $11.3 million in the fourth quarter and $10.4 million in the first quarter last year. This reflects credit upgrades in the commercial loan portfolio, reduced exposure to riskier but profitable consumer as Hawaii's economy begins to recover and the credit risk environment moderates. ASB's net charge-off ratio for the quarter was 0.18%, compared to 0.36% in the fourth quarter and 0.44% in the first quarter of 2020. Non-accrual loans were up slightly percent compared to 0.89% in the fourth quarter and 0.90% in the prior year. We remain conservative as we take a wait-and-see approach to Hawaii's economic recovery, and at 1.73% as of quarter end, our allowance for credit losses was the highest among Hawaiian peers. We're seeing positive loan deferral trends across ASB's portfolio. Nearly all deferred loans have returned to scheduled payments. Active deferrals are just 0.2% of the total loan portfolio. We've experienced declining delinquencies in the higher risk commercial and consumer portfolios. While realizing a slight uptick in delinquencies in the residential portfolio, that portfolio is low risk and secured by rising value in the Hawaii real estate market. These two factors have contributed to a decreasing risk profile of our overall loan portfolio. ASB continues to manage liquidity and capital conservatively, maintaining ample liquidity and healthy core capital ratios. The bank has approximately $4 billion in available liquidity from a combination of reliable resources. ASB's Tier 1 leverage ratio of 8.33% was comfortably above well-capitalized levels. Prospectively, given the lower risk profile of our portfolio, we anticipate managing closer to an 8.0% or above Tier 1 leverage ratio and drive competitive profitability metrics, growth of the ASB dividend, while maintaining a strong capital position. We expect higher bank dividends to HEI this year than reflected in our February guidance, given ASB's strong performance and outlook and efficient capital structure. We now expect dividends of approximately $50 million-$60 million, versus the previously estimated $40 million. For the quarter, the ASB board has declared a $23 million dividend to HEI. We still do not anticipate the need to issue any external equity in 2021 at HEI, unless we identify significant additional accretive investment opportunities. We are committed to maintaining an investment-grade profile. At the utility, we're pleased to have had recent utility credit rating upgrades by S&P to BBB flat and Moody's to Baa1, both with stable outlooks. Turning to our guidance. We're reaffirming our previously issued utility guidance. While the utility had a strong first quarter, we'll be returning cost savings to customers beginning June 1st and expect additional overhauls later in the year. In addition, while the first quarter benefited from higher revenues due to a methodology change to remove seasonality in recognizing target revenues, a portion of that will reverse later in the year. We are revising our bank and consolidated guidance. Our revised guidance is $0.67-$0.74 per share, up from a prior guidance of $0.52-$0.62. We're revising our NIM expectations at the bank to 2.8%-3%, down from 2.90%-3.15%. The impact on net interest income should be muted by balance sheet growth. Given strengthening credit dynamics and outlook for the Hawaii economy, we now expect provision to range from $0 to $10 million, which we believe remains appropriately conservative given continued uncertainty for the economy until we see increased vaccination levels and the eventual return of international travel. We expect that stronger bank profitability will translate into consolidated earnings growth as well as increased bank dividends to the holding company, we're increasing HEI guidance, EPS guidance to $1.90-$2.05 per share. Now I'll turn the call back to Connie. Thanks, Greg. I'm proud of the dedication of our employees and the resilience of our companies as we continue to provide essential electricity and banking services and deliver solid financial results while helping Hawaii reach its aggressive climate goals and build back better. Last month, we issued our second consolidated ESG report, which includes our ESG priorities and our first task force on climate-related financial disclosures aligned reporting. We're considering the implications for our companies of the Biden administration's goal to cut carbon emissions 50% from a 2005 baseline by 2030. We believe our goals and plans here in Hawaii and the work we've been doing for some time place us on a strong path to achieve a net zero future. We're updating our planning and analysis, and we'll report further on that in the future. Finally, we say aloha to Rich today as he is leaving American to pursue other interests. Rich accomplished a great deal during his more than 10 years at the helm of American. Rich leaves American in great shape, as evidenced by ASB's strong first quarter earnings and Greg's comments earlier. Under Rich's leadership, ASB has grown its assets, expanded its customer base, products, and services, and improved operational efficiency. He and his team have provided great customer service and made banking easy for customers. We thank Rich for his leadership and contributions to American and also our state. Ann Teranishi, currently the bank's Executive Vice President of Operations, will succeed Rich as President and CEO later today. Ann is a strong collaborative leader with deep banking industry knowledge and a 14-year track record of success at American. We look forward to Ann's leadership. Now we will open it up for your questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Please go ahead. Hey, good afternoon, team, or good morning to you all. Thanks so much for taking the time. Hi. Good to be here. Absolutely. Likewise. Well, congratulations on some fairly impressive results and turnaround. Maybe to kick things off here on the utility side, can you comment a little bit on this 9% ROE? That's a pretty fantastic outcome, especially given the backdrop here. How do you think about the cadence through the course of the year of that ROE? Because obviously you've kept your utility numbers intact. How do you think about that degradation through the course of the year relative to what is presumably some of the cost-saving metrics? Then if I can throw another twist on there, is that 9% something we should think about in the later years as those front-end loaded cost benefits roll off here? Thanks, Julien, for the question. I'll start and characterize this. For the first quarter, we had a good start to the quarter, but largely in line with plan. The utility has been focused on efficiencies and cost savings since last year, and you saw the benefits of that at our year-end report as well, and that's continued well into this year. As you know, we have accelerated customer bill benefits as we implement PBR this year, and 2021 is a transition year under PBR. We expect while we've got a great start and solid expectations, we'll meet all of our plans on those cost reduction efforts that we're still in line with our overall guidance that we issued at the beginning of the year, and that our ROEs will reflect that guidance, which we represented just below 8% earlier this year. Again, the quarterly results recognize a fast start, but over time, it will moderate to be consistent with our guidance. The other element that you mentioned, though, was those cost benefits of the cost saves will continue with the programs that Scott and Tayne and the utility team has put into place. We do expect some opportunity for that to benefit realized earnings over time as we continue through the full implementation of PBR and over the next several years. Got it. Excellent. Then just to make sure I heard this on the utility side right, how do you think about that utility CapEx issue here, just around some of the delays? What's the order of magnitude that's at risk here, just to understand? Because I know you alluded to some things, but you're keeping intact your rate-based targets this year at the same time. Yeah. Again, we don't see a lot of risk to the capital deployment plan, investment plan. There's a lot of needed investment, and the utility's done a great job in preparing and deploying for that. You've seen at different points in time that the timing of specific projects can get delayed and impacted. Overall, the utility's confident that they'll be able to meet their investment program and capital deployment consistent with the guidance we've provided. Got it. Super quick on the ASB side of the equation. With respect to NIM versus the release of reserves here, how do you think about that to trend through the course of the year, right? [I mean,] obviously, things are accelerating as you describe yourself in your prepared remarks, so presumably that bodes well on release, but obviously NIM lower here. Just can you comment about those two factors through the course of the year as best you understand it today? Sure. This is Rich. The NIM, we brought the guidance down, really reflecting the sort of what's the continued pressure of the current environment. If you think about it, you've seen the deposits grow. Since loan growth is relatively modest, a lot of that goes into the investment portfolio. You're mixing down because the margins on the investment portfolio are just lower than loans because there's no credit risk in there, right? You're going to continue to have that mix effect until you get the economy stronger and loan growth moving up, right? On the provision, right now a lot of it will depend on what happens with the specific credits, right? If the economy stays stronger, we would expect that credits that are in the special mention category would come up because that's potential credit concerns. If we don't see them because the economy's improving and they're paying and the risks don't appear, then with those upgrades you could see continued adjustment of the level of coverage on the portfolio. I think all the banks in the market brought down the coverage level a bit in the first quarter, and it's going to depend on how the sustained improvement of the economy is and the results on those specific credits. Excellent. All right, I'll leave it there. Congrats again. Speak soon. Okay, thanks Julien. Have a good Friday. Our next question comes from Durgesh Chopra with Evercore ISI. Please go ahead. Hey, team. Thanks for the update today, and taking my question. Can I just maybe, Greg, in terms of the utility EPS growth guidance of 4%-5% 2022- plus, that does not include performance incentive mechanisms as I understand it. Depending on can you quantify what the PIMs upside might be? Does it put you at the high end of that growth target, or could you actually grow higher than 5%? What to look for in terms of timeline as to the cadence of when these PIMs get approved and rolled into your plan? Sure. As you know, with the implementation of PBR, a lot of those near-term PIMs and the incremental PIMs under PBR are being finalized currently. The initial deployment of those seem to be somewhat moderate to provide room for additional PIMs over time and potentially a more meaningful opportunity. The current year's guidance does not anticipate any meaningful contribution from PIMs. The guidance that we've given in terms of the 4% or 5% growth area was really predicated on our growth of invested and return on our invested capital, which we have good recovery mechanisms for. Maybe I'll turn it over to Tayne or the utility to talk about the dynamics, though, longer term of the PIMs developing and opportunities. Hi. Yeah, this is Tayne. Thanks, Greg Hazelton. In terms of the PIMs. We've laid out some of that in our appendix part of our slides. What we do see is for the PBR, the new PIMs in PBR, you can see that there is a lot more upside opportunity rather than penalties or downside. Currently this year, as Greg Hazelton mentioned, the PIMs are very modest as we get more guidance in terms of the details regarding the PIM. What I would say is looking forward, the greatest opportunity we have for the PIM comes from the RPS-A PIM. That comes from what we're doing in terms of adding more renewables on our system. The other thing I would say about that is there's also opportunities in other of the outcomes set forth in the PBR docket which actually relate to customer outcomes and forwarding the state and energy goals there. That's a little bit on the PIMs. Did I answer your question? Yes, you did. Thank you. Just to be clear, though, the 4%-5% does not include the additional upside that you might have for PIMs. That would be on top. The 4%-5% is just recovery of base capital, right, as it stands in the pipeline? Yes. Correct. That's correct. The 4%-5% growth is on our invested capital. Yeah. Durgesh, as you know, we have an annual adjustment mechanism under the PBR, which will give us an increasing budget relative to inflation that should keep us whole. Cost management within that target, and then also the recovery mechanisms on capital are part of that. Relative to the PIMs, I would just point you to pages 35 and 36, 37, where we provide more detail. On 37, we did provide some estimated ranges for the RPS-A PIM, in particular, based upon our expectations of renewable project growth that could be achieved but we still have to prove that out. Understood. Thank you. That's super helpful. Just maybe a quick follow-up. Greg, your comments around equity, you mentioned no equity this year unless you identify additional investment opportunities. Maybe just a little bit more color on what those opportunities might look like. Well, you've gotten specific guidance for each of our primary operating subsidiaries, ASB, which is self-funding, and a great source of capital and dividend distribution to the holding company with a very efficient capital structure. You understand the capital deployment plans at the utility, which are online to achieve their targets. Pacific Current, as you know, continues to develop and look at investment strategies here in Hawaii, consistent with our infrastructure-oriented mandate and a conservative approach, also focused on competitive sustainability type investments here in Hawaii. They continue to keep an active development pipeline and opportunities. Some of those investments can be lumpy. We will announce to you when we achieve additional growth and investments, but we see that as a promising opportunity. For the time being, we see those as relatively moderate and well-accommodated by our overall guidance and our ability to fund the growing platform. Understood. Thanks again for the time today. Much appreciated. Yeah. Thanks, Durgesh Chopra. Thanks. Our next question comes from Paul Patterson with Glenrock Associates. Please go ahead. Hey. Aloha. Hi, Paul. Just to follow up on the questions from Julien on the loan release. How should we think about if the economy continues to stay strong, how often should we think about the potential for the loan loss reserve to be released? Do you know what I mean? Is this sort of a quarter-by-quarter thing or it would seem to me that perhaps you'd want to have a little bit of time not just on a quarterly basis to see how these loans are performing in terms of reversing it? Just generically, it sounded to me that you guys felt that you were quite conservative and clearly with this release this quarter, it seems you were. How should we think about that, if you follow what I'm saying? Yeah. If you look back to last year before the pandemic, our coverage of reserves to the loan book was about 1.5%, right? That built up over the course of last year to 1.9%, and we came down to about 1.7%. As Greg mentioned, our coverage is the strongest of the peers in the market. You can see the book's shifted slightly over the course of that time, right? We have lower consumer unsecured, that's by design. I think the mix of the book is a lower risk mix. Right now in the reserving, there are assumptions that assume, as Greg said, a wait-and-see attitude. We haven't built in assumptions of a lot of improvement in the economy because we need to see it, and we're waiting. It will be a quarter-by-quarter assessment of the ratings on specific credits and how the book evolves in terms of lower balances, higher balances in certain categories. I think you can see from where we are, we're still at a more robust coverage level than we were going in. That reflects the environment and that reflects the state of specific credits as the customers work through the environment. As we came into the year, we didn't assume a lot of reduction. That's the difference in what you saw. If you think about the 0 to 10 range, the 10 would assume basically not much reduction in additional coverage, and the 0 would assume that you got some. Where we end up in that will be a quarter-by-quarter assessment. Okay. Got it. On the CBRE order, my understanding was that these are sort of PPAs. I just was wondering, when looking at the order, I guess I'm wondering is this really Hawaiian Electric? It would seem to me ultimately that it would be with the party doing the PPA. The other party who's supposed to be coming in with certain commercial dates. I'm just sort of wondering how, if it was found that these PPAs weren't working out as planned and that there was some liability that Hawaiian Electric would theoretically have exposed, would there be any recourse to another party? Do you follow what I'm saying? Yeah. Let me ask the utility to address that. Yeah. Hi, Paul. This is Scott Seu with Hawaiian Electric. The issue here is whether or not there is any liability for these projects being delayed. One of the things that we are planning to really raise to our commission is just throughout the process. The process has allowed for additional technical work to be done in terms of establishing the requirements for these projects to be interconnected to the grid, and then as necessary, to be able to file amendments to the PPAs, including possibly amending the guaranteed commercial operation dates. That's really what the crux of the matter is, as far as we see it. To the extent that we are able to work through these issues with the PUC. While we are all trying to accelerate these project in-service dates just because of a variety of factors such as accelerating the RPS. At the same time, we feel that we have to be able to allow the developers reasonable time to get their projects installed and interconnected. Your question about could the developers, in theory, essentially challenge the utility? Again, it really depends on the specifics of the project. We've been working collaboratively with the developers as we've worked through the technical and contractual, and service date issues. I just won't speculate in terms of whether or not any of these developers, at some point in the future would feel the need to have a challenge to us. Okay. I know that they're asking you to sort of record and sort of underline that and that any potential penalties, I guess, would be in another proceeding, or a future proceeding. Just in a ballpark, if they were to be regulatory liabilities, what are we potentially talking about? Just roughly speaking, what's the size of the potential liability? Hi, Paul, this is Tayne. We're talking about millions of dollars annually in terms of potential. Somewhere less than $10 million a year? Well, okay. Let me also provide you some details. In order to calculate any type of penalty, it really does matter on assumptions in terms of guaranteed commercial operation dates, avoided costs, and then also the price of oil. There's a lot of assumptions made in that calculation, and so very hard to determine at this point in time. I would say we're talking about millions of dollars annually. Okay. Just on the storage order that came out also, I guess, last week. I guess the feeling there is they're just not happy with the cost controls that are associated with that. Could you elaborate a little bit further about how you see the Commission's order, and if we should have any larger takeaways associated with their orders that they put out on Thursday? Yeah, Paul. I think the commission has some additional concern beyond the cost of the project. One of the concerns they've raised is the role of the battery and how it's actually functioning as part of our electric system. In particular, whether or not this grid-tied standalone battery would be charged by renewable energy versus fossil fuel energy. [So that's one--] I think that's almost a central issue, as far as a concern that the commission has raised. That's really, again, for further discussion and as we file our motion for reconsideration next week, we'll be raising our own points of view. Okay. Thanks so much, guys. Have a happy weekend. Thank you. Thanks. Thanks, Paul. Thank you. Our next question comes from Jackie Bohlen with KBW. Please go ahead. Hi, everyone. Good morning. Morning. I wanted to start off with just the liquidity mix and understanding there's a lot of factors at play here. I saw the borrowing reduction that took place in the quarter. I'm just curious about what your thoughts are about additional liquidity deployment with that bucket now lower, and then just the expectation that PPP loans will continue to be forgiven. How you expect things to fluctuate with that and what any deployment plans might be? Yeah. No, we're diligently seeking loan growth, right? That's the obvious place that we'd like it to go. We are probably not selling as much of the mortgage production, and so you'll see, we hope the more of that production to go on balance sheet. Otherwise, it's commercial real estate. There's some projects that we hope to be able to get participation in and some other ongoing investment in investment commercial real estate. The shift is strictly going to be based on what the organic level of loan growth that we can achieve is. We're not looking at portfolio purchases at this point and things like that. It's all sort of regular customer community banking relationship growth. The deposits continue to be strong. We do expect at some point that we would see a drawdown in deposits as things normalize, but we haven't seen that yet. It goes into the investment portfolio, and Dane and his team do the best they can to get some yield on it. Okay. [And then] is there anything that would indicate that the HELOC portfolio, that some of the contraction there, and I fully understand the rate environment is driving that. My expectation is it might continue to come down, even if single-family mortgage, outside of the mix of what you're putting in portfolio and not putting into portfolio, stabilizes just as people, it might still be advantageous to refi. Is that the correct way to look at it, or do you see it a different way? I think that trend is still there. Interest rates moving up hasn't yet resulted in mortgage rates moving up. You've got that gap there. You will continue to see the refinancing dynamic. We're also starting to see with the valuation increases on residential, you're starting to see people thinking about ways to monetize some of the equity growth that they have. We are at early stages of, I think, the HELOC applications starting to pick up. Okay. Maybe some home improvement projects could be coming down the pipeline, and that could mitigate some of the other rate pressures? Right. Okay. That's helpful. Sorry, just running through my list. I know we already had a pretty robust provision discussion. Just in terms of the expense guide, I know there's a lot of maintenance and control. Is the plan still to offset in some of the investments that were discussed early on in the prepared remarks with cost savings from other areas? Yeah. [So, you know, we're trying--] our guidance was to come out kind of in the roughly the $48 million a quarter kind of range, flat versus last year. There are naturally embedded inflations in the cost base, which are lease escalations and things like that. We described last time what we were doing to hold payroll costs, and we didn't do merit increases and things this year because of the importance of controlling it. The things that we're doing on the branch network will pay savings in the future. We've already brought headcount down fairly significantly in some of those areas. I think we continue to offset those embedded inflations, and our work is not done till we get the cost savings that we want out of all the investments that we're doing. Okay. I think when you look at the Connie mentioned the metrics on deposit transaction migration kind of as the indicator. On the consumer side, we've gone up from if we were sitting here a year ago, we would've said that the transactions were about just under 20%. On the consumer side, now 46%, 47% of the transactions as we left the quarter were being done outside the branch through the new ATMs and mobile and remote deposit. The business side is lagging that, and we'll work on that. As we do the we talked about these digital centers, which are going to be more lightly staffed branches built around the full-function ATMs, but with teammates in there to help customers learn and adopt and get comfortable. It's those kinds of things that will take the workload down that will allow us to do more of the savings. Okay. Great. Rich, best of luck with whatever life brings you next. It's been nice chatting with you over the last decade. Thanks, Jackie. We'll miss it. Our next question today comes from Charles Fishman with Morningstar. Please go ahead. Thank you. Just one question left. If I understood Greg correctly, some of the cost savings that you experienced in the first quarter, later in the year, you're going to be reversing those or credits will go to customers under the PBR. I guess that leads to my question is, once the PBR is in effect post June 1, at that point, will there just be a regulatory liability that you established so you won't have that timing issue? Maybe to clarify the guidance. As you know, as PBR was implemented, there was an acceleration of cost-saving benefits that was required under PBR, which we clarified and was $6.6 million annually levelized for the next three years or for the initial period of PBR. It takes a while for that to organically happen, for the cost controls and everything to realize those type of savings and efficiencies. The utility has accelerated that work and as you see, they started that last year to see the O&M savings be able to fund that accelerated commitment. Our expectation is, and the guidance was, that O&M, excluding our pension costs, would be flat to down year-over-year, despite even on the utility side, some natural inflationary costs increases, because that's offset by the overall efficiency programs. As those continue to gain traction and are implemented more fully, there will be likely benefits above and beyond what we're providing directly to customers that will help us close the gap on our realized ROE and achieve in line with earnings growth expectations over time. [And] Charles, just to be clear, in the near term, there is a timing difference because that $6.6 million in customer savings that Greg mentioned for 2021, the utility did start generating those savings. Under PBR, they don't start going back to customers for the total year until June 1. We are generating the savings up front, but they will go back to customers starting June 1 for the 2021 year. Starting in 2022, the levelization, will take it month by month throughout the year. To be clear, the implementation of PBR on June 1st also limited some of the benefits from PBR, including removing the lag on our annual revenue adjustment mechanisms and so forth. Again, next year, some of the additional benefits of the PBR framework, when fully implemented for the full year, we should see some benefits from that outside of the O&M issue that we're talking about. Charles, this is Tayne Sekimura. One thing I want to add to what Greg and Connie said, in terms of mechanics of the return of those customer savings, it's built into the ARA formula as part of PBR, and then those tariffs going into effect on June 1st. That's how mechanically it'll be returned back to customers. Okay. [I just--] it'll just be a learning curve for, I guess, all of us on this. Thank you. That was good. I saw the information you provided in the exhibits too. That's helpful. Thank you. That's all I had. Okay. Thanks, Charles. Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Julie Smolinski for any final remarks. Thank you all for joining us today and for your questions. Please do reach out to us in Investor Relations if you have any further questions. Most importantly, have a great weekend. Thank you, ma'am. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.