Utility costs drive down HEI earnings
HAWAIIAN ELECTRIC Industries Inc., which in late September implemented its first Oahu rate increase in 10 years, said yesterday that earnings fell 12.1 percent in the third quarter as operation and maintenance expenses from its utility subsidiary rose $6.7 million from a year earlier.
The state's largest utility provider posted net income of $37.5 million, or 46 cents a share, compared with $42.7 million, or 53 cents a share, in the same quarter of 2004.
Analysts had expected earnings per share of 47 cents, according to Thomson First Call
Revenue rose 17.6 percent to $595.9 million from $506.8 million primarily due to higher fuel prices that were passed on to consumers under a fuel-adjustment clause that HEI has with the state Public Utilities Commission. Consequently, operating expenses grew 22 percent to $518.7 million from $425.1 million.
Income from continuing operations declined 8 percent to $37.5 million, or 46 cents a share, from $40.8 million, or 51 cents a share, a year earlier when the company had a $1.9 million gain from discontinued operations.
"Our systems are being run harder to meet high levels of demand that were set last year," said Robert Clarke, chairman and chief executive of HEI. "Fortunately, the Hawaii Public Utilities Commission has since granted Hawaiian Electric Co. interim rate relief, allowing the utility future recovery of some of the increased costs of operating and maintaining its system."
Hawaiian Electric implemented a 3.3 percent temporary rate increase on Sept. 28 -- the final three days of the quarter -- that gives the company the potential to make an additional $41 million in annual revenue. HEI initially had sought a 7.3 percent increase but lowered the amount after a series of negotiations with the state. The state is expected to make the increase permanent but it is unclear when that would occur.
Net income from HEI's utility operations fell 13.7 percent last quarter to $22.6 million from $26.2 million a year earlier as kilowatt-hour sales remained flat.
"We saw demand levels increase significantly last year, so we are comparing sales against a high bar," Clarke said.
He also said an increase in residential customers last quarter was offset by lower usage due to less humid weather and more energy conservation.
"Customers may be responding to the utility's campaign to promote energy conservation and efficiency and possibly reacting to higher fuel prices reflected in electric bills," he said.
Several large commercial customers were temporarily offline for repairs and renovation projects during the quarter and contributed to lower commercial sales, Clarke said.
HEI said the utility's operating expenses were $457.3 million compared with $373.9 million a year earlier. Fuel oil expenses rose 42.1 percent to $182.7 million and purchased power costs increased 15.2 percent to $122.1 million. The $6.7 million increase in operation and maintenance costs resulted from increased transmission and distribution maintenance, higher production maintenance, rising retirement benefits expenses and increased staffing and other costs to support demand, reliability and customer service programs.
Depreciation costs also were $2.1 million higher in the quarter.
HEI, which also owns American Savings Bank, said net income from the state's third-largest financial institution rose 3.5 percent to $15.9 million from $15.4 million a year earlier. Net interest income, which reflects the difference of what the bank pays depositors and what it brings in from loans, gained 8.9 percent to $52.9 million from $48.6 million. Net interest margin increased to 3.26 percent from 3.09 percent.
"Strong growth in loans and core deposits, as well as increased yields on loans and mortgage-related securities, more than offset margin compression pressure from the flattening yield curve and the continued suspension of dividends paid on the bank's Federal Home Loan Bank stock investment," Clarke said.
Noninterest income, which includes revenue from service charges and fees, increased 2.4 percent to $13.9 million from $13.6 million.