HECO weighs rate hike

Hawaiian Electric earnings fall 10.2% but beat forecasts

By Dave Segal

POSTED: 01:30 a.m. HST, Nov 03, 2009

Hawaiian Electric Co., which has increased rates on Oahu three times since 2005, is anticipating requesting another rate increase to go into effect in 2011.

Connie Lau, president and chief executive officer of HECO parent Hawaiian Electric Industries Inc., disclosed the possible need for another Oahu rate increase yesterday during a conference call in which the company announced a 10.2 percent drop in third-quarter earnings.

Despite the decline, HEI said that cost cutting helped the company beat analysts' estimates by 8 cents.

"Given our expectations at the outset of the quarter for continued difficult economic conditions and delays in the regulatory process, our operating companies instituted disciplined efforts to control costs which contributed commendably to mitigating these effects," Lau said.

HEI's earnings fell to $33.5 million, or 37 cents a share, from $37.3 million, or 44 cents a share, a year ago.

Revenue declined 32.2 percent to $620.3 million from $915.4 million.

Lau said HECO anticipates filing the rate-increase request by the middle of 2010 —to go into effect in 2011 — pending what happens with its current Oahu rate case, as well as with a decoupling docket that is currently before the state Public Utilities Commission.

In August the PUC approved the implementation of a partial interim increase on Oahu of 4.7 percent, or $61.1 million, which contributed $5.8 million last quarter to utility net income from the year-earlier period. HECO is still awaiting the PUC's ruling on the remainder of its rate request, which totaled 6.7 percent, or $86.8 million.

MONEY TALKS THIRD-QUARTER NET $33.5 million YEAR-EARLIER NET $37.3 million

The decoupling docket stems from the Hawaii Clean Energy Initiative in which the HECO utilities, the state Consumer Advocate and the state agreed to pursue a new way of setting electric rates. The PUC currently is considering this new model, which would better encourage conservation and energy efficiency by removing the link between the revenue the utility earns and kilowatt-hour sales.

Lau also reconfirmed yesterday that HECO expects to file a rate case with the PUC before the end of this year for its Big Island subsidiary, Hawaii Electric Light Co., and is still awaiting word on the 9.7 percent rate-increase request filed earlier this year for Maui Electric Co.

Last quarter, electric utility net income rose 2.2 percent to $26.5 million from $25.9 million a year ago, while HEI's other main subsidiary, American Savings Bank, saw its net income fall to $11.3 million, up from $4 million in the second quarter but down from $15.4 million at the same time a year ago.

Lau said short-term, aggressive cost-containment measures and project deferrals taken in the third quarter in response to delays in the regulatory process resulted in the company's utility operations and maintenance expenses rising just 8 percent year-to-date through the third quarter compared with the 10 percent annual increased that HEI had anticipated at the end of the third quarter. She said HEI now expects operations and maintenance expenses to increase by only about 6 percent in 2009 from 2008.

"While a small portion of these reductions are sustainable, the majority of the reductions are temporary cost-containment efforts which cannot be sustained long term without impacting operations," Lau said.

American Savings, meanwhile, saw its net interest income, reflecting the difference between what it pays depositors and what it brings in from loans, fall 0.3 percent to $50.5 million from $52.3 million a year ago and its noninterest income, which includes fees and service charges, decline 28.5 percent to $11.9 million from $16.7 million. Noninterest income was reduced by $9.9 million last quarter due to an impairment charge from private-issue mortgage-related securities.

The bank also set aside $5.2 million for potential loan losses compared with $13.5 million in the second quarter of 2009 and $2 million in the third quarter of 2008.

Separately, the company maintained its quarterly cash dividend of 31 cents per share, payable Dec. 10 to shareholders of record at the close of business on Nov. 16.