Hawaiian Electric's Approved Wildfire Plan May Lead to Utility Cost Adjustments for Hawaii Businesses

The Public Utilities Commission (PUC) has approved Hawaiian Electric's (HECO) updated Wildfire Safety Strategy (WSS), granting the utility authorization to proceed with significant investments aimed at reducing the risk of wildfires ignited by its equipment. This approval allows HECO to seek necessary funding for implementing enhanced safety measures and expanding community partnerships.

While the overarching goal is to improve grid resilience and public safety, the financial implications for the state's businesses, particularly concerning energy costs, warrant close monitoring. The WSS involves a range of preventative actions, including vegetation management, equipment hardening, and enhanced public safety power shutoffs during high-risk conditions. The utility's ability to fund these initiatives often translates into rate adjustments, which directly affect the operating expenses of businesses across Hawaii.

Who's Affected

• Small Business Operators (small-operator): Businesses relying on consistent and affordable electricity will need to track potential future rate increases. These could directly impact margins for restaurants, retail shops, and service providers, especially those with high energy consumption for refrigeration, lighting, or equipment. The timing of these potential cost increases is dependent on HECO's rate filing process, which typically involves public hearings and review by the PUC.

• Real Estate Owners (real-estate): Property owners, including landlords and commercial property managers, should be aware of HECO's infrastructure investments. While the plan aims to reduce wildfire risk, large-scale infrastructure projects can sometimes lead to temporary service disruptions or necessitate adjustments in long-term utility cost projections for leases. Furthermore, increased awareness of wildfire risk could impact insurance premiums for properties in higher-risk zones.

• Investors (investor): Investors in HECO or related infrastructure should monitor the utility's capital expenditure plans and the progress of its WSS implementation. The costs associated with wildfire mitigation are substantial and could influence HECO's financial performance and future dividend payouts. Observing PUC's oversight and any potential challenges to rate increases will be crucial.

• Tourism Operators (tourism-operator): Hotels, resorts, and other hospitality businesses, while not directly billed for grid infrastructure upgrades, may face indirect cost increases. Any rise in HECO's base rates could eventually be passed through in the form of higher operating expenses, potentially leading to marginal increases in service costs that could be factored into pricing strategies.

• Agriculture & Food Producers (agriculture): Farms and food processing facilities often have significant energy needs for irrigation systems, climate control, and machinery. Increases in electricity costs could directly affect their cost of production. The implementation of safety measures like power shutoffs could also pose risks to perishable goods if not adequately managed.

Second-Order Effects

The approved wildfire plan and its associated funding mechanisms are likely to trigger a chain reaction of economic impacts within Hawaii's unique island economy:

• Higher Utility Costs → Increased Operating Expenses for Businesses → Potential Price Hikes for Consumers → Reduced Consumer Spending and Tourism Competitiveness

Specifically, if HECO secures rate increases to fund its WSS, businesses will face higher electricity bills. This increased cost of doing business may force some establishments to raise prices for their goods and services. As prices rise, consumers may reduce discretionary spending, impacting local retail and restaurants. For the tourism sector, higher operational costs for hotels and tour operators could be passed on to visitors, making Hawaii a more expensive destination and potentially impacting visitor demand.

What to Do

While the approved plan is a step towards enhanced safety, businesses should adopt a monitoring approach to prepare for potential financial and operational impacts.

Action: Watch for Hawaiian Electric's (HECO) official rate increase applications filed with the Public Utilities Commission (PUC). Monitor the PUC's public notice system and dockets for opportunities to provide comment on proposed rate changes and the implementation details of the Wildfire Safety Strategy (WSS). Pay attention to HECO's capital expenditure reports and any public statements regarding project timelines and expected cost recovery.

For Small Business Operators and Tourism Operators, proactive budgeting for a potential 3-7% increase in utility costs over the next 1-2 years is advisable. Review your expense lines and identify areas where energy efficiency can be improved or operations optimized to offset potential rate hikes.

Real Estate Owners should stay informed about HECO's infrastructure projects in their areas and consult with their insurance providers to assess any changes in property insurance premiums related to wildfire risk.

Investors should closely follow HECO's financial reports and any analyst commentary regarding the WSS implementation costs and their impact on the company's earnings and regulatory outlook. Tracking PUC decisions on rate cases will be paramount.

Agriculture & Food Producers should evaluate their reliance on grid electricity for critical operations and explore opportunities for on-site renewable energy generation or storage solutions to mitigate future cost volatility and ensure operational continuity during potential grid events.