Category Archives: Energy

Despite bad local press, Hawaiian Electric beats financial analysts expectations

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Hawaiian Electric Industries, the parent company of the electric utilities on Oahu, Hawaii Island, and Maui County, reported quarterly earnings yesterday. The company’s press release can be found here.

Corporate officials then met with a group of financial analysts via a telephone conference call to discuss the financial results. Their presentation to the analysts is available on the HEI website.

There were a couple of interesting exchanges that went beyond the financial numbers.

One analyst asked what had changed to allow HECO to suddenly commit to eliminating much of the permit backlog for photovoltaic systems.

Alan Oshima, HECO President and CEO, responded, according to a transcript of the call provided by the online financial site, Seeking Alpha. He appeared to credit technological improvements in solar inverters, which are used to link PV systems to the larger electrical grid.

We’ve been working… with the industry and installers, but we’ve also been working with national labs, etcetera, to test the capabilities of the inverters to see how quickly they could respond to fluctuations and recently preliminary results from those tests indicated that they could respond as quickly as we think is necessary in highly loaded circuits in order to provide some assurance that we will not experience stability or instability that would affect other customers.

So that is what we caused us to relax and start moving some other customers who have been waiting for approvals in those highly loaded circuits towards approval as long. As the inverters can meet those standards we can start moving the queue again.

OSHA said most of the backlogged permit applications will be processed within the next five months.

Another analyst asked what risks could be faced by American Savings Bank, another HEI subsidiary, as a result of the lava flow threatening Pahoa.

The answer came from Heather Schwarm, the bank’s chief financial officer. She said about 100 homes with mortgage loans from American Security Bank are in the impacted area, but that any impact on the bank would be “minimal.”

So essentially when we provide loans in a lava area, there is something called a lava zone one, two, three, four, and five depending on the risk of that particular area, it’s just like flood zone, it’s like flood zone right and so we have done a review of what exposure we have.

Essentially it’s about 100 homes that would be impacted that we have loans to and in the queue we actually did disclose about just under $13 million of exposure, mostly residential there is one commercial property as well.

Based on that, when we do make the loans, we do require lava insurance for zones one and two, which is where the majority of these exposures are. So at inception of those loans, these properties were required to have lava insurance.

Now really what that entails is if the lava were to destroy the home specifically, then they would be eligible for reimbursement. So the other item that is in play here is that there is a limited access point to the town of Puna and so if the lava were to cover that load and limit access, it’s very uncertain of what impact that would have on the overall collateral values that those homes that we have there.

So if I understand that correctly, the bank expects minimal impact if homes are destroyed by lava because owners are required to have insurance coverage sufficient to protect the underlying mortgage.

But, again if I understand that correctly, it could be a different story if homes are cut off and isolated by the lava flow, causing home values to tumble. If home values dropped below the value of their outstanding loans, leaving homeowners “under water,” it could impact the bank’s collateral and reduce the value of its loans.

At least one investment company thought the company is making progress and is predicting its stock will perform better than the overall stock market and has a price target 20% above its current value.

Zacks’ analyst wrote, “We are upgrading our recommendation on Hawaiian Electric Industries Inc. from Neutral to Outperform ahead of the third-quarter 2014 earnings results. Gradual improvement of the Hawaiian economy has continuously boosted the company’s performance. Hawaiian Electric’s systematic investments to increase its power generation capacity and in its transmission and distribution projects will help to meet increasing customer demand. The company’s steady focus on expanding its renewable assets will enable to meet government environmental regulations. We appreciate the company’s efforts of maximizing shareholder wealth through the payment of regular dividends.”

Rep. Chris Lee drawn into pre-election exchange with Mililani Trask, OHA candidate

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Representative Chris Lee ran unopposed in the Democratic primary in House District 51 (Kailua-Waimanalo), and now faces Republican Wayne Hikida, an insurance executive, “traditional family” supporter, and “a Bishop for the Mormon Church,” according to his campaign website.

But this doesn’t mean that Lee’s primary was uneventful. Attorney Mililani Trask, a candidate for an at-large seat on the Board of Trustees of the Office of Hawaiian Affairs, launched a surprise attack on Lee just days before the primary via a column at HawaiiReporter.com (“Rep. Chris Lee Destroys Hawaii’s Options for Geothermal, Solar Power“).

Trask accused Lee of being a stooge for Hawaiian Electric, alleges that he blocked “every bill proposed for the solar industry,” and even accused him of racism for blocking bills favored by Innovations Development Group (IDG), a company competing for rights to develop future geothermal projects on the Big Island. Trask has been a lobbyist for the company and has other financial links to it.

Lee responded the next day with his own column (“IDG lobbyist Mililani Trask unhappy I chose our community over her employer“).

Lee reminds us that IDG had backed candidate Cal Lee for an OHA seat in 2012 with contributions and “loans” well in excess of legal limits (see “Geothermal developers aim to unseat OHA trustee Apoliona“).

Then Lee got down to business.

While I strongly disagree that any company should buy elections like this, I understand why these special interests and their lobbyist Ms. Trask are now coming after me. I wrote a bill to expand geothermal power to meet Hawaii’s clean energy goals – but I would not agree to give their company the exclusive ability to develop it. They opposed provisions the public asked me to put in the bill to require that developers adequately engage local communities about their plans before drilling begins.

And he went on.

…even a simple google search reveals her attacks are false. She claims I “heard every Bill proposed for the solar industry & made sure none passed…” But in fact, House Bill 1943, which I introduced and passed, was the solar industry’s top priority to help put more solar on the grid. I was nominated by The Blue Planet Foundation and solar companies as Hawaii’s “Solar Champion” for stepping up on the issue.

I haven’t tracked back to all the bills and other items referenced by Trask and Lee.

But I did note that Trask’s financial disclosure, required because she is a candidate, omits her financial ties to the geothermal industry.

Trask reports earning between $50,000 and $100,000 from Indigenous Consultants LLC for legal advice, lobbying, and community advocacy.

She also reports representing both Innovations Development Group and geothermal developer Huena Power LLLP before four state agencies, including OHA.

She does not, however, disclose her ownership of Indigenous Consultants, instead responding “None” when asked to disclose her “ownership or beneficial interests in businesses” valued at $5,000 or more, or representing at least a 10% ownership interest.

State business registration records show Trask is the agent and manager for Indigenous Consultants, and the company is registered at her Big Island addresses.

Business registration records also show Trask’s connections with two other companies.

She is listed as president of KG Assets, Inc., described as “general partner of geothermal development company,” KG Assets LLLP.

A New Zealand government registry lists KG Assets LLLP as having been approved to acquire “40.0% of the Te Ahi O Maui Limited Partnership (TAOM LP) which owns or controls a leasehold interest in 171.4700 hectares of land at Kawerau.”

State records also list Trask as a member of Taupo Development Group LLC. Other members of this LLC include Innovations Development Group and several of its officers.

Proposed IRS rules could provide another boost for rooftop solar

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Yet another factor expected to further complicate the situation of electric utilities like Hawaiian Electric was made public on Friday.

It’s a set of proposed amendments to rules of the Internal Revenue Service that apply to Real Estate Investment Trusts, or REITs. A pre-publication draft of the proposed new rules was announced in the Federal Register, and is available for download.

According to Street Insider, one set of changes can be expected to boost solar companies because they would now allow solar systems installed on buildings to be classified as part of the real estate and eligible to be part of REIT portfolios.

Street Insider quotes an analyst from Northland Capital: “The net conclusion is that any structure which provides an utility service (i.e. heat water, electricity) and is purpose built for a particular building qualifies for REIT status. We believe solar systems, combined heat and power, lighting, possibly windows as an efficiency asset, and other components will qualify for REIT status.”

What this means is a huge new source of lower-cost funding for solar systems, and an increase in the pace of “adoption of new energy technologies for buildings,” Street Insider commented.

The solar industry has been pushing for changes in the IRS rules for several years, it seems.

Later, SI notes: “We would expect significant pushback from utilities on this ruling and expect an aggressive campaign against these changes.

Why utility pushback? Presumably it’s because this just means more players and more competition in what for the past century has been pretty much the private fiefdom of the utilities.

It’s interesting in this context to refer again to the widely quoted article in Forbes back in March that reported the views of a former U.S. Energy Secretary (“Steven Chu Solves Utility Companies’ Death Spiral“).

In Chu’s business model, utilities will borrow money—because “utility companies get to borrow money as inexpensively as just about anyone in the United States”—to buy rooftop solar modules and batteries. Then they’ll partner with private rooftop-solar installation firms—”because I don’t expect a utility company to figure out how to do that”—to install rooftop panels and batteries at customer homes.

The utility will own the panels and batteries and sell electricity to the customers at a much lower rate.

Customers would not only get lower rates, they would get solar power without having to pay for installation, Chu said, and they would get a battery backup that can keep the lights on and the refrigerator running for up to a week in a power outage.

Utility companies, meanwhile, would benefit from a distributed network of panels and batteries “where they need it the most, at the end of the distribution system, for grid stability.”

Chu’s idea allows utility companies to expand without installing new transmission lines, completing environmental impact reports, “and all of that stuff,” he said.

So, at least in Chu’s vision of a new utility business model, these changes could become beneficial to utilities. But that seems to require a new mindset and a new regulatory model as well.

Public hearings on the new rules are scheduled for September.

HECO execs sidestep question about limits to rooftop solar

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Just a couple of hours before Hawaiian Electric Industries annual stockholders meeting on Wednesday morning, executives of HEI and its subsidiaries, HECO and American Savings Bank, had a conference call with investment analysts to present and discuss the company’s 1st Quarter financial results.

Several of the questions were prompted by last week’s decisions and orders issued by the Public Utilities Commission.

The transcript is quite interesting. There are several versions online, and I’m using the one from available online at SeekingAlpha.com.

Several questions about the pace and extent of the company’s integration rooftop solar were asked by Andrew Weisel, an investment analyst for Macquarie Research who covers US utilities, merchant power, renewables and smart grid companies.

One of his questions seemed to go straight to the center of the recent controversy over the pace of solar integration.

HECO had presented a graphic showing that 11% of customers have gone solar. He pointed to the 11% figure and asked: “And how high do you think that could go in the next several years in terms of what the grid, the current grid, would be able to physically handle safely and reliably?”

Read the replies carefully.

HECO’s president and CEO, Richard M. Rosenblum, was the first to reply. He said the choice of rooftop solar depends on many interrelated factors.

For instance, if the cost of our generation, because we could get LNG in, goes down, the economics shift. If federal credits or state credits change over time, the economics can shift. If the rate structure changes, the economics can shift.

So it’s really interactive to a great many things, all of which are in flux and somewhat speculative. Having said that, if you think about rooftop solar, and I don’t mean to be trivial, but just to break it down to a logical chain, first, you need a rooftop. So if you’re a — an apartment dweller or a condo dweller or a renter, for instance, you probably don’t have the ability to put something on the roof. Second, you need the financial wherewithal to be — to be creditworthy enough to support the investment whether it’s leased or bought. And third, you need the desire to put it on your roof. To some extent, that would depend on the age of the roof and the type of occupancy you have. For instance, if you’re a vacation occupant and only here a few weeks a year or a month a year, you probably don’t have the desire to do that. So there are limiting factors that are pretty clear, and at some point, those dominate the trend.

Connie Lau, HEI’s president and CEO, then chimed in on the issue.

…there are customers that really want PV and have the kinds of rooftops in order to have the PV, but there are other customers, ask my neighbor, who has a tiled — a clay tile roof and doesn’t want to touch his roof because the PV panels would potentially harm his clay tiles. So that’s the new world that we’re in. It’s customer choice.

Did you catch it? The question was specifically about the capacity of HECO’s current electrical grid to absorb rooftop solar. How high solar power can the grid physically handle safely and reliably? The question was not about what percentage of the customer base will want to choose rooftop solar in the future.

The answers carefully avoided a direct answer about HECO’s capacity or the technical limits of the grid to incorporate larger amounts of solar.

Of course, it’s a common trick when you’re interviewed. Don’t answer the question that is asked. Answer the one you wanted to be asked.

Perhaps they just don’t know the physical limits of the existing grid. HECO apparently closer to testing those limits than other mainland utilities. But if they don’t have an answer, why not just admit it?

In response to another question, though, Lau seemed to be implying that the issue isn’t the capacity of the grid to incorporate a growing number of rooftop solar systems. Instead, it’s a financial question of how the benefits of rooftop solar are to be spread across the power generation and transportation network as a whole. She seems to be saying it’s more a financial issue than a technical issue.

In the early days of IPPs (independent power providers), utilities purchased independent power at avoided cost. Well, if we all still stayed on avoided cost and our cost is oil, we’re not going to achieve the ultimate goal of lowering the bills to our customers by replacing the higher-priced oil with any other kind of generation if it’s going to cost the same to our customers. So that’s the kind of discussions that we have to have within our state. And that’s why I point out it isn’t just about the utility. It’s got to be a community-wide effort where we all talk and we all agree on the trade-offs that are to be made.

Check out the transcript, and share your take on the questions asked and answers provided.