Hawaii’s highest-in-the-nation energy costs stay intact by politics, monopoly

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POWERFUL: Much of Oahu's tropical beauty is marred by a crisscross of aging power polls and powerlines, critics say.
POWERFUL: Much of Oahu's tropical beauty is marred by a crisscross of aging power polls and powerlines, critics say.
POWERFUL: Much of Oahu’s tropical beauty is marred by a crisscross of aging power polls and powerlines, critics say.

BY MALIA ZIMMERMAN – HONOLULU — If residents of Hawaii are going to have affordable electricity, the state needs to break up Hawaiian Electric Industries Inc., the parent of the Hawaiian Electric Co., a former lawmaker contends.

A study of electric rates produced by WalletHub, Most & Least Energy Expensive States, puts the unit price of electricity in Hawaii at  38.5 cents per kilowatt-hour, or 4.5 times more than the cheapest state. Natural gas in Hawaii is six times more expensive than other places in the country.

Fred Hemmings
POWER PLAY: Former Hawaii state Sen. Fred Hemmings says politicians allowing monopoly control of Hawaii’s energy market are largely responsible for high costs.

Former state Sen. Fred Hemmings puts the blame squarely on politics.

“Hawaii’s most egregious for-profit monopoly is Hawaiian Electric Industries Inc. Even during the last fuel crisis, Hawaiian Electric posted robust profits,” Hemmings said.

“Hawaiian Electric has been able to get away with these prices for most of the 20th century and into the 21st century because of politics. One of their biggest expenditures is their government relations division. They have friends in the Legislature.

“There are solutions to Hawaii’s energy problems. Allowing Hawaiian Electric to continue with business as usual is not one of them.”

Hemmings said he wants Hawaii lawmakers to break up the monopoly and create nonprofit consumer-owned electric utilities.

One cost driver is executive pay, Hemmings said.  Hawaiian Electric Industries Inc. CEO Constance Lau is paid $5.8 million annually, which earned the company an “F” grade rating  from Glass, Lewis & Co.

CEO and Founder of WalletHub, Odysseas Papadimitriou, an industry expert in personal finance, said what he found interesting about the study results on Hawaii, is while consumption of electricity is the second lowest in the nation, Hawaii’s energy prices are the highest.

Hawaii residents are already doing their share to bring energy prices down by collectively using the least amount of energy of any state in the nation, and instead of investing in consuming even less, Hawaii residents should pressure to politicians to bring down the prices, Papadimitriou said.

Panos Prevedouros, a professor of engineering at the University of Hawaii, is critical of HECO’s priorities and use of technology.

“One of the most ridiculous things, instead of implementing smart grid for efficient and reliability, the company is spending billions of dollars on an undersea cable to connect power grids on each of the Hawaiian Islands. That is going to cause costs to skyrocket,” Prevedouros said.

GET SMART: Panos Prevedouros, a professor of engineering at the University of Hawaii, says HECO should invest in smart grid technology not costly "pie in the sky" ideas.
GET SMART: Panos Prevedouros, a professor of engineering at the University of Hawaii, says HECO should invest in smart grid technology not costly “pie in the sky” ideas.

For a number of reasons, the plan isn’t a good one, Prevedouros said, including the expense, estimated at as much as $2 billion, and the base load it will put on the state’s oil resources on islands other than Oahu, where the state’s population is largely based.

“The grid is in bad shape. We don’t have winter storms here, yet we have one of the highest power interruptions. That’s in part because of the low-hanging wooden power polls that are overrun with vines, or easily blown over by wind, leaving the entire neighborhood dark,” Prevedouros said.

Hawaii residents should be able to rely on the elements to generate electricity like the abundant amount of sun, Prevedouros said. But HECO controls the energy market so completely that the company even decides who in the state can get a working solar panel system.

Ironically, those with solar panels ultimately take away from the company’s profits. That doesn’t give the company incentive to approve solar hook-ups for residents. In fact, residents have waited months to get approval for the solar system they purchased and hooked up to the grid.

“They can control permits, refuse permits, delay indefinitely and restrict capacity,” Prevedouros said of HECO. “No other body can override them.”

In April, a new opinion poll by the Honolulu-based polling firm SMS and commissioned by The Alliance for Solar Choice, an organization representing most rooftop solar installations in the United States, documented Hawaiian Electric’s “significant public image problem.”

The poll showed an overwhelming number of Hawaii residents, or 94 percent of those surveyed, support more rooftop solar, and 90 percent said HECO is slowing rooftop solar to protect its profits.

The telephone poll of 405 randomly selected residents from three Hawaii counties was released in April with a 5 percent margin of error.

“The people of Hawaii clearly want and expect more rooftop solar, and are looking to both HECO and to policymakers to advance policies that help increase access for homes and businesses,” said Jon Yoshimura, a Hawaii spokesperson for TASC.

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19 COMMENTS

  1. Thanks Malia for this. Right to the point. Been saying that for a long time. Monopoly! I'd like to see solar customers be given the right to donate their excess solar credits to non-profits, schools could certainly benefit as there is a Sun Power for Schools which HECO manages. Asked my representative (District 27 Democrat) to look into this last year, got an e mail saying to go to this hearing, which was a waste of time and energy for me. On another note, I addressed this idea matter to Max Fowler who is running for District 27, what do you know, he is very open to this idea. Can you imagine how much the schools would benefit? What about non-profits like IHS, and others? The impact could be great, but HECO does not want this to happen.

  2. Excellent article. HEI, the parent company, is publicly traded and I have been reviewing their financial statements for a few years. I learned that HEI pays more proportionally of its profits (dividends) to its shareholders than other power companies of comparable or larger size! This means that it has less capital available each year for infrastructure investments, like smart grids. It also means that it can show the PUC that it needs to raise rates because they retain fewer profits at the end of a year, as if they look poor!. Hawaii residents are cheated every year as rate increases are approved, and no one is questioning why HEI is paying out more of its profits as compared to its industry. This practice is entirely unfair to the public. I wrote letters and even spoke at a PUC hearing here in Hilo, but nothing changes.

  3. Also HE has a pension plan for it's employees that may be under funded.HE has negative cash flows and pays a juicy annual dividend of close to 5%( 100 million dollars a year). with a huge dividend payout to support, HE had to raise money by taking on more debt. and possibly siphoning cash from its bank segment(ASB). So we have a utility company, Hawaii Ecectric,that has an under funder pension plan (by roughly $350 million),and which is a highly overvalued utility, has a growing debt, accused of misleading earnings, a low growth rate ( less than 1% after -tax profits compounded annually for 11 yrs !),and facing revenue losses from solar installations and doesn't seem to have the ability to tap into renewable energy resources. this utility is heading into trouble.

  4. HE is a very important company in Hawaii. employs a lot of people.some if not a whole bunch of shareholders in this utility are ordinary everyday folks that depend on the quarterly dividend payments as much needed income for their households.retirees,widows,senior citizens benefit from the dividend payments. and perhaps the 5% yield given to it's shareholders my not be sustainable .they might have to cut their dividends or stop it altogether. one solution could be deregulation. Just eliminate the political control over the industry.another solution is to eliminate all the taxes imposed on all petroleum products in Hawaii. and that includes eliminating the $1.00 tax per barrel of crude oil imported and heavily used by HE to generate electricity. Eliminate all utility taxes and for all businesses in hawai,eliminate corporate taxes.But is any of this going to happen? And perhaps HE should renegotiate with its union employees to terminate the present pension plan with a 401K Plan instead.

    • You are mistaken about the importance of HEI's dividends as "much needed income for … retirees, widows, senior citizens". Here are the calculations, based on HEI's standard $.31 per share dividend per quarter. Let's assume that those folks receive $1,500 per quarter in HEI dividends, ok? That seems like a substantial amount for folks scraping by. Well, in order to receive that much in dividends, someone would have 4,838.71 shares of HEI stock. Based on last year's stock price range of $20.06 to $26.48, those 4,838.71 shares equal a whopping $97,064.52 to $128,129.04 investment. Since the average American has $35,000 saved for retirement, according to the IRS, anyone with 4,838.71 shares in HEI is an exceptional person who exceeds the average American's wealth. So, you see, shaftalley, HEI dividends could only be a significant income to those with significant wealth.

  5. Elaine, I am assuming that many of the shareholders have been re-investing their dividends since these retirees,senior citizens and married couples started buying these stocks in years past.for example,people that started buying HE stocks thirty yrs. ago and reinvested their dividends would accumulate quite a lot of shares thru compounding.when a dividend is reinveted,you are able to purchase more shares every quarter and this in turn is called compounding.this is the best way for anyone to acquire wealth in their lifetime. I started doing this with utility companies 5 yrs. ago (but not HE). I think young people today should buy shares in a "blue chip" company that pays dividends and re invest the dividends for their retirements. ANYWAY, I agree with you! Something has to be done. But I am wondering if Senator Fred Hemming's approach will do the trick?He wants Politicians and government to "solve" the problem. I suggest the free market approach.It trumps politics everytime.

  6. Shaftalley, you are misguided, again. Let's assume that someone had $200 in HEI stock 30 years ago. Also assume that the amount is compounded at a 5% yield with all dividends reinvested (i.e., the yield). According to investor.gov's calculator, that amount would be worth $888 today. Unfortunately, the price of HEI stock has not appreciated much over the decades because of management's insane insistence on issuing $.31 per share per quarter. In order to pay those dividends, HEI issues more stock, which results in the dilution of the share price. So a long term investor in HEI, is only getting a 5% return, unlike other utility companies who do not payout so much of their profits in dividends. These well-run companies give their shareholders appreciation in the value of their stock as well as dividends.

    • I have had Hawaii muni bonds, but wouldn't touch HEI. I haven't looked at their pay out ratio either. A far better vehicle I have been in for a few years is a commercial REIT, Northstar finance and their spinoff company. REITs traditionally pay out 90% of their profits to shareholders in dividends or ROC.

  7. Elaine, I think you are way off in your calculations. I went to the Hawaii Electric investor relation web site and used their data from 1990-2013. Used their stock price history and dividend history. Interestingly,the quarterly dividend paid by HE was $0.52 (1990) up to $0.62(June !0,2004). HE had a stock split of 2:1 in June of 2004 and the company has paid a steady quarterly dividend of $0.31 since to the present time. Anyway, with my calculations, that $200 invested from 1990 thru 2013 would have grown to $1500 with only the dividends reinvested and no other contributions.and all the data had the stock split (2:1) factored in. That is the power of compounding dividends,which buys more shares every quarter,with cash dividends. The higher share balance will generatehigh cash dividens next paymentperiod to buy more shares,thru boom or bust cycles,it makes no difference. But in the case of Hawaii Electric,is it sustainable? According to Dividend.com, the pay-out ratio is 76.5%, which borders on the high side.anything under 75% is considered comfortable.I think shareholders should start worrying if HE cuts the dividend.shareholders as well as customers of Hawaii electric should be pro-active and let the board of directors show all their concerns.

    • All I know is my son's 1000 graduation money (1997) is now worth over 8000., just reinvesting dividends and splits.

  8. Good article.
    Is anyone looking at the City Council's ruling on increasing the Property tax from 3.5 to 6 % for those that don't have
    home exemptions? The increase is extremely high. I feel families that own property for over 20 years should also have the exemptions. Everything is for low income households, what about those families that worked their entire lives for their children to have a home? The appraisals have gone up on our home 120,000 which was built in 1948.
    Even with the exemption the rates are too high.

  9. Hawaii residents would be much better off investing in the Hawaii Municipal Bond Fund from Lee Financial Group, a highly respected and ethical company on Oahu. The fund pays a tax-equivalent yield of 4.5% to 5% and is federally and state tax free.

    • I do not like debt.

      For investment purposes, the return sounds good, however, the interest robs available resources. Now if Hawaii were to take control of its money supply and start a state bank it could realize sound state finances like North Dakota, the only state to escape the 2008 financial collapse and the only state missing out on the current economic crisis.

      Ellen Brown, former candidate for CA Treasurer, has great insight on alternatives to debt by taking control of the state's money supply and bringing it back home to the states to use. http://prn.fm/money-ellen-brown-hid-civic-treasur
      http://ellenbrown.com/2014/06/10/its-our-money-wi

      Good. The returns look good but lets take a peek at better, and best. I want to sniff around for the best choices.

      • Ellen Brown is a Greenbacker. She promotes unbacked paper money.I wonder if Ms. Brown supports the free market or something like National Socialism? And what about a publicly owned bank? won't these banks still use the fractional reseve regulations?

      • Man,something is not right about Ellen Brown's monetary solutions, including creating a " state bank " here in Hawaii. a government in a money producing business is a disaster waiting to happen.

  10. Countries nationalize resources, what's stopping Hawaii from snatching control of electric utilities resources into state ownership? HECO is making profits, so can Hawaii.

    What's stopping Hawaii from snatching back its money, taking it back in house by forming a state bank like North Dakota? North Dakota is the only state missing out on the 2008 to date economic crisis.

    Oh, yeah, politicians. Right, right, never mind. What was I thinking?

    • Countries nationalize resources…" yeah,like the former president of Venezuela,hugo chavez, and his buddy Fidel in cuba. And do we really want political appointees and fractional reserve bankers running a publicly owned bank in Hawaii? it's not north Dakota.

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