Hawaiian Electric’s
net income dives

The company faces rising costs
and is seeking to hike Oahu
power rates 7.3 percent

Hawaiian Electric Industries Inc., awaiting a state agency's decision on a request to raise Oahu power rates 7.3 percent, said yesterday it missed analysts' first-quarter earnings estimate by 7 cents as net income plunged 22.1 percent.

The power company owner and parent of American Savings Bank blamed the shortfall on increased operations and maintenance costs at its Hawaiian Electric Co. subsidiary. Net income for the subsidiary dropped 38.1 percent to $12.4 million from $20 million a year earlier and more than wiped out an 11.5 percent net gain by American Savings Bank to $17.8 million.

Overall, HEI had net income of $24.1 million, or 30 cents a share, compared with $30.9 million, or 40 cents, in the first quarter of 2004. Revenue increased 8.1 percent to $472.6 million from $437.1 million a year earlier. Six analysts surveyed by Thomson Financial had projected a consensus earnings estimate of 37 cents a share, ranging from 33 cents to 40 cents.

The company will hold its annual shareholders meeting today at its downtown headquarters.

"Several years of growth in Hawaii's economy have resulted in new construction and increased residential usage which have added to our load -- especially our peak load," said Robert F. Clarke, chairman, president and chief executive of HEI. "To ensure reliability, we have been running our peaking units more often, which in turn increases operations and maintenance expenses."

Kilowatt-hour sales declined 0.9 percent to $2.3 million from $2.4 million as cooler weather curbed usage, Clarke said.

"However, strength in tourism and a healthy Hawaii economy helped moderate the decrease," Clarke added.

Operating expenses climbed 12.6 percent to $416 million. Most of that rise came from the Oahu utility, whose expenses rose 13.5 percent to $343.2 million from $302.5 million.

In November, Hawaiian Electric Co. filed a request with the state Public Utilities Commission for the utility's first rate increase in a decade. The increase would raise an average residential bill about $7 a month, and bring in about $74 million a year. A decision is expected later this year.

Meanwhile, other operations and maintenance expenses for the electric subsidiary were $8 million higher last quarter than the same time a year ago. Extra costs included $2.5 million on repairs and maintenance on an Oahu generating unit, a $1.2 million increase in retirement benefit expenses, and $400,000 of accounting compliance costs.

American Savings Bank benefited from strong growth in both deposits and loans, continued good loan quality, the reversal of loan loss reserves and an increase in interest on mortgage-related securities. The bank, which did not break out several of the numbers in its earnings release, reversed loan loss reserves that were associated with a large delinquent commercial loan that was repaid in full. The reversal was partially offset by a provision to the allowance for loan losses to account for loan growth.

Net interest income, which reflects the difference of what the bank pays depositors and what it brings in from loans, rose 13.4 percent to $53.6 million from $47.3 million. Net interest margin widened to 3.29 percent from 3.05 percent in the first quarter of 2004, primarily due to the increase in interest on mortgage-related securities.

Noninterest income, which includes revenue from service charges and fees, slipped 1.3 percent to $13.8 million from $14 million.