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Hawaiian Electric (HE) Files for Approval of Periodic Rate Hike

Zacks Equity Research

Hawaiian Electric Industries, Inc. HE has filed for an increase in base rates in the island of O'ahu.

Details of the Filing

The rate hike will result in a 6.9% increase in the company’s revenues, translating into annual contribution of $106 million. A typical residential customer, consuming 500 kilowatt-hours a month, would see a monthly bill increase of $8.71 on the basis of their Dec 2016 bills. However, even if the full amount of the filing is approved, the new bills would still be lower than the 2015 average levels owing to relatively lower fuel prices and Hawaiian Electric’s cost-reduction strategies.

Also included in the filing is a proposal of new benchmarks by the company to quantify its performance and link certain revenues to key objectives like customer service and reliability.

Post review by the Public Utilities Commission, a bill revision is anticipated earliest in the second half of 2017.

Rationale of the Filing

The company is seeking a rate increase to recover the operating costs of upgrading systems to ensure grid reliability, enhancing customer service through staff increase, and investing in technology to accelerate the increase in share of renewable energy in Hawaiian Electric's mix, which will be in line with its goal of 100% clean generation by 2045.

Hawaiian Electric has spent over $900 million in the last six years for the replacement and modernization of equipment to improve efficiency and reliability of the O’ahu electric grid. Further, the number of private rooftop solar systems has jumped from 5,000 to nearly 54,000 on the island over this period.

However, the company has absorbed a substantial portion of these investments without passing them on to customers through rate hikes.

Price Movement

Shares of Hawaiian Electric have gained 17.6% over the past 12 months, outperforming the Zacks categorized Utility – Electric Power industry’s gain of 7.6%.

Hawaiian Electric is poised for earnings growth over the next several years backed by its systematic investments in renewable energy, storage technology and grid modernization. The company has witnessed three upward estimate revisions for 2016 over the past 60 days. The company’s growth prospects have been propelling investor interest and in turn, its stock price.

A Similar Filing by a Peer

Recently, PNM, the New Mexico affiliate of PNM Resources, Inc. PNM, has filed for a rate hike proposal with the New Mexico Public Regulation Commission. On approval, it would result in an increase of $99 million in electric rates and will be effective from Jan 1, 2018. The average customer bill would increase 11.2%.

Zacks Rank & Key Picks

Hawaiian Electric carries a Zacks Rank #2 (Buy). A couple of other favorably ranked stocks in the same space include Ameren Corporation AEE and DTE Energy Company DTE.

Ameren has seen six upward estimate revisions for 2016 over the last 60 days. During this time period, its estimates have increased 6.7% from $2.53 to $2.70. The stock carries a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DTE Energy has seen three upward estimate revisions for 2016 over the last 60 days. DTE Energy carries a Zacks Rank #2 as well. During this time frame, its estimates inched up 1.2% from $5.21 to $5.27.

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