Hawaiian Electric Industries Inc. HE announced that its regulated electric utility, Hawaiian Electric Light Co. (HELCO) is filing for a rate increase with the Hawaii Public Utilities Commission (PUC). Typically, in every three years, the company files for a rate hike to recover investments in strengthening its operations and infrastructure.
Why Rate Hikes are Essential for Utilities
Regulated utilities need to file for a rate hike whenever costs for providing services rise and revenues can no longer cover the cost of building, operating and maintaining the entire system. The proposed rate hike will provide necessary funds to Hawaii Electric Light to continue infrastructure upgrades, strengthening and expanding the existing systems, vegetation management focusing on the albizia tree removal and providing reliable services to customers.
By 2016 end, Hawaii Electric Light will have made capital investments of more than $290 million over a period of six years, including replacing and upgrading transmission lines in West Hawaii, modernizing generation equipment to increase efficiency, and adding or replacing lines and transformers as well as more than 4,500 poles for new and expanded service.
Rate Filing After Six years
Even though the company can file for a rate hike after every three years, the last rate hike application was filed in 2010. In 2013, with a PUC approval, Hawaii Electric Light withdrew its request to increase base rates, leaving the base rates unchanged since 2010.
This time, the rate hike was unavoidable as expenses incurred in vegetation management were significantly higher than expected. The company had invested $14 million in Albizia tree removal since 2014.
Albizia is one of the fastest growing trees in the world, with growth rates of up to 15 feet a year. The roots of these trees are broad but shallow, which leads to many toppling over during storms. Naturally, when the tropical storm Iselle hit Hawaii in 2014, it caused extensive damage to electricity infrastructure, with a huge number of Albizia trees falling on the power transmission and distribution lines.
What It Means for Customers
Seeing that uninterrupted and reliable supply of power is essential for customer satisfaction, rate hikes are an imperative move for upgrading and managing power infrastructure.
If approved, a typical residential bill for 500 kilowatt hours on Hawaii Island would increase by $9.31 a month to $171.16. The proposed rate increase is yet to be approved by regulators and will not likely be effective before the summer of 2017, if not later.
But thanks to low fuel prices, bills reflecting the new rates would still be lower than the year-ago level.
Zacks Rank & Key Picks
Hawaiian Electric currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the utility industry are Spark Energy, Inc. SPKE, Korea Electric Power Corporation KEP and DTE Energy DTE. Spark Energy currently sports a Zacks Rank #1 (Strong Buy), while DTE Energy and Korea Electric both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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