Maui Electric Files 2010 Rate Request with Public Utilities Commission

Maui Electric Company (MECO) late yesterday submitted an application to the Hawaii Public Utilities Commission (PUC) requesting an increase in electric rates for Maui County customers in 2010. The overall revenue increase of 9.7%, or $28.2 million requested for Maui, Molokai and Lanai is needed to help pay for capital improvements and increased operating and maintenance costs. The case also serves as the important starting point for a potential new regulatory model that could move the utility away from earning revenues based on the amount of electricity sold and instead encourage the utility to help its customers use less electricity and install more distributed renewable generation.

As part of the energy agreement signed under the Hawaii Clean Energy Initiative, Maui Electric, Hawaiian Electric and Hawaii Electric Light Company agreed, along with Governor Linda Lingle, the State of Hawaii Consumer Advocate, and the State Department of Business, Economic Development and Tourism, to pursue a new regulatory model called "decoupling,” that would delink the earning of revenues from electricity usage. "This could be a game changer that sets a new environment for us to work even more with our customers to help them use energy efficiently and to use more renewable resources,” said Ed Reinhardt, Maui Electric Company President. The level of revenues set in this rate case could be used to set the base starting point for decoupling. The PUC is evaluating the details of the decoupling model in a separate docket.

The PUC and the Division of Consumer Advocacy will conduct an extensive review of the rate request, and any rate increase, if approved, is not expected to take effect until mid-2010 at the earliest. At that time, it will have been almost three years since MECO’s last general rate increase (monthly fuel surcharges increase or decrease based on actual fuel prices and MECO makes no profit on fuel purchases).

If the full request is approved by the PUC, a typical residential household in Maui County would likely see the following changes:

• Maui (600 kwh per month): $13.43 per month increase, for a total bill of $172.46
• Lanai (500 kwh per month): $14.61 per month increase, for a total bill of $181.80
• Molokai (500 kwh per month): $13.65 per month increase, for a total bill of $172.69

"We know that these are challenging times and understand that any increase is difficult for our customers,” said Reinhardt. "We’ve made concerted efforts to contain costs and improve efficiency but we must also make the investments to fulfill our responsibility to provide reliable service to our customers. A strong electric grid is also the backbone needed to support the integration of even greater amounts of renewable energy for our customers.”

MECO’s requested increase would cover more than $122 million in new capital projects to improve service reliability. Among the major projects are:

• Replacement and upgrade of power plant control systems for Maalaea Generating Units M17 and M19,
• Installation of a new 100-kW photovoltaic system at MECO’s Kahului Baseyard to incorporate solar energy into MECO’s facilities,
• New or expanded substations to support past and future growth and improve service,
• Replacement and upgrade of underground lines to improve service reliability, and
• Investments in transformers, poles, meters and other facilities to maintain reliable service and fulfill new service requests from customers.

MECO’s requested increase would also cover costs for more frequent inspections of utility poles and lines and increased tree trimming around power lines for greater reliability, and more extensive servicing of generating units to maintain efficiency.

The proposal also includes a lower depreciation expense which incorporates new proposed depreciation rates that distribute recovery of the cost of capital assets over a longer period of time.

The PUC is expected to hold a public hearing on the proposed 2010 increase in the next few months and an evidentiary hearing in mid-2010. The PUC may grant an interim increase within 10 to 11 months following today’s application, but the PUC is not obligated to grant an interim increase. The timing and amount of any final increase is up to the discretion of the PUC.

MECO’s last rate increase, amounting to 3.7%, was received in December 2007; that was the company’s first increase in almost nine years.

Maui Electric Company, Limited, is a subsidiary of Hawaiian Electric Company, Inc., which is owned by Hawaiian Electric Industries, Inc. (NYSE:HE). Hawaiian Electric Company, Inc. together with its subsidiaries Maui Electric Company, Limited and Hawaii Electric Light Company, Inc., supplies power to over 400,000 customers, or 95% of the population on Oahu, Hawaii, Maui, Lanai and Molokai.