HEI’s earnings skewed
by year-ago charge

Hawaiian Electric Industries Inc. reported yesterday a surge in net income for the latest quarter compared with the same period last year, but the 145.4 percent rise was distorted by a one-time charge taken by the company last spring, and the company fell short of analysts' expectations.

Hawaiian Electric reported $27.6 million in profit, or 34 cents a share, compared with $11.2 million, or 14 cents a share, a year earlier.

Last year's quarterly earnings were hampered by a one-time charge of $24 million, or 30 cents a share, because of an unfavorable tax ruling against a real estate investment trust operated by Hawaiian Electric's bank subsidiary, American Savings Bank.

Revenue rose 13.1 percent to $522.3 million from $461.8 million.

For continuing operations, Hawaiian Electric earned $28.3 million, or 35 cents a share, compared with $11.2 million, or 14 cents a share. A consensus of five analysts surveyed by Thomson Financial had expected Hawaiian Electric to report 41 cents a share for the recent quarter.

Some $755,000 in discontinued operations -- primarily due to legal costs associated with the disposition of the company's international operations -- weren't factored into analysts' forecasts because it wasn't known that HEI would be taking the one-time charge according to James Bellessa, an analyst with D.A. Davidson & Co. in Great Falls, Mont..

Although Hawaiian Electric said the state's rising economy had increased demand for utilities service and contributed to growth in deposits and loans, the company said it was hurt by increased operating and maintenance costs for its utilities and an interest rate environment that had reduced the spread, or net interest margin, between what it makes from interest on loans and what it pays out in interest on deposits.

Bellessa said he had expected Hawaiian Electric to report earnings of 40 cents a share, in part because he thought American Savings Bank's interest rate margin would be higher.

Bellessa said he had expected the margin to be about 3.3 percent, similar to what Hawaiian Electric reported in the first quarter.

Instead, Bellessa said, it was 3.01 percent. That was also lower than 3.08 percent in the second quarter of last year.

American Savings Bank did manage to increase second-quarter net interest income to $48.8 million from $48 million in the same quarter last year.

The company's utility segment reported a decline in earnings, which dipped to $19.8 million during the recent quarter from $21.7 million a year earlier, despite increased demand for electricity because of warmer weather and an increase in visitors.

Although electric utility revenue rose 16 percent to $430 million from $371 million, operating expenses for the subsidiary rose more -- by 19 percent -- to $387.1 million from $324.7 million.

"Increased demand has been a double-edged sword," said Robert Clarke, Hawaiian Electric's chairman, president and chief executive.

"We have been running our peaking units longer, which requires more operations and maintenance costs."

Hawaiian Electric has asked the state Public Utilities Commission to let the company raise its Oahu power rates 7.3 percent in part because of higher maintenance expenses. Hearings are scheduled for September and an interim decision and order expected by the fourth quarter of this year.

For the recent quarter, the company reported $8.8 million of higher operations and maintenance expenses. This included $2.4 million for overhauls, inspections and higher generation station maintenance, as well as less than $1 million for substation maintenance and vegetation management expenses and $3.5 million for increased staffing and other costs to support increased demand, reliability, customer service and energy efficiency programs, the company said.