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Morningstar | Hawaiian Electric's Triennial Rate Case Cycle Should Drive Higher Returns

Hawaiian Electric Industries continues to be a confusing story for investors, as it derives roughly 65% of consolidated earnings from an electric utility and about 35% from a regional bank, American Savings Bank, or ASB. However, an improving Hawaiian economy, driven in large part by tourism, should benefit both businesses.Although growing rooftop solar installations are a concern, the Hawaiian regulatory framework includes sales-decoupling mechanisms that for the most part shield utility earnings from lower sales due to customers installing rooftop solar. HEI's three utilities have restarted their three-year cycle of rate cases after a stay-out period of six years due to the failed merger with NextEra Energy. Although regulatory lag--the difference between allowed and actual returns--remains a concern, we estimate utility earnings should grow almost 7% annually in 2019-23 with the resumption of triennial rate cases.We estimate wholly owned ASB's earnings will increase about 6.5% annually over the next five years due primarily to loan growth in a state with a solid economic outlook.Shareholders were treated to 3.2% dividend increase in the first quarter of 2019, the first increase in 20 years. We project the benefit of lower income taxes and the resumption of triennial rate cases should allow HEI to provide shareholders with 3%-4% annual increases over the next five years.