HECO Restructuring Could Shift Energy Costs and Reliability for Hawaii Businesses

A recent island-wide power outage on February 2nd has intensified legislative calls to restructure Hawaiian Electric (HECO). This potential overhaul introduces significant uncertainty regarding future energy costs, grid reliability, and regulatory accountability, impacting business operations across Hawaii. While no immediate regulatory changes are in effect, the ongoing legislative push necessitates a watchful approach from businesses reliant on stable and predictable energy services.

The Change

The recent widespread power outage served as a catalyst for renewed legislative efforts to address the structure and performance of Hawaiian Electric. Lawmakers are now actively considering proposals that could fundamentally alter HECO's operational and regulatory framework. While specific restructuring plans are still nascent, the core objectives are to enhance grid reliability, improve accountability, and potentially create a more responsive energy infrastructure. The exact timeline for legislative action is not yet defined, but the public and political pressure following the outage indicates these discussions will likely accelerate in the coming legislative session.

Who's Affected

This potential restructuring will have far-reaching implications for various sectors of the Hawaii business community:

• Small Business Operators: Businesses with substantial energy needs, such as restaurants and retail operations, face potential volatility in operating costs. Shifts in energy pricing structures or investments in grid upgrades could translate to higher utility bills. Unreliable power could also lead to lost sales and operational disruptions, impacting staffing needs and requiring contingency planning.
• Real Estate Owners: Property owners and developers must consider the long-term implications for electricity infrastructure. Any restructuring that impacts HECO's capital investment strategy could delay or alter the feasibility of new developments or major renovations, particularly those with high energy demands.
• Investors: Investors in Hawaii's energy sector, utilities, and businesses heavily reliant on stable power face increased risk due to regulatory uncertainty. Future profitability of companies depending on HECO's services may be affected by changes in energy pricing, reliability, and potential new investment requirements in grid modernization.
• Tourism Operators: Hotels, resorts, and other hospitality businesses are critically dependent on uninterrupted power. Potential changes in power reliability, however framed, could disrupt guest services, increase operational costs, and diminish the visitor experience, potentially impacting future bookings.
• Entrepreneurs & Startups: Startups, particularly those in technology or manufacturing requiring consistent power for operations or data centers, need to assess the long-term stability and cost of energy infrastructure. Unpredictable energy costs or reliability issues could hinder scaling efforts and increase burn rates.
• Agriculture & Food Producers: Agricultural operations often have significant energy requirements for irrigation, refrigeration, and processing. Any disruption or cost increase in energy supply could impact crop yields, food spoilage rates, and the overall cost of production, potentially affecting local food prices.
• Healthcare Providers: Hospitals, clinics, and other healthcare facilities require highly reliable power for life-support systems, diagnostic equipment, and patient care. While critical facilities often have backup generators, prolonged or frequent outages stemming from grid instability could strain resources and necessitate investment in enhanced backup power solutions.

Second-Order Effects

Potential changes to HECO's structure could trigger a cascade of effects throughout Hawaii's island economy. For instance, a push for grid modernization, driven by restructuring, might necessitate significant capital investments by HECO. If these investments are passed on through increased electricity rates, this could:

• Increase operating expenses for all energy-dependent businesses (e.g., small businesses, agriculture, tourism).
• Contribute to a higher cost of living for residents, potentially increasing pressure on wages.
• Make Hawaii a less attractive location for energy-intensive industries or startups when compared to other markets.
• Impact the perceived reliability and cost-competitiveness of Hawaii as a tourism destination.

Conversely, a successful restructuring leading to improved reliability could reduce business interruptions and associated costs, creating a more stable operating environment. The uncertainty itself, however, is a significant factor for businesses planning long-term.

What to Do

Given the 'WATCH' action level, businesses should focus on monitoring developments and understanding potential future impacts rather than taking immediate, drastic action.

Action Details

Monitor legislative proposals concerning HECO's structure and regulation closely. Track news from the Hawaii State Legislature and regulatory bodies like the Public Utilities Commission (PUC). Watch HECO's public statements and filings regarding their capital investment plans and any proposed rate adjustments. Assess your business's energy dependency: evaluate critical systems that rely on consistent power and research backup power solutions or energy efficiency improvements. Consider escalating energy costs or reliability concerns in long-term financial planning and risk assessments. For tourism operators and real estate owners, review lease agreements and capital expenditure plans to incorporate potential future energy cost fluctuations.

Specific Guidance for Roles:

• Small Business Operators: Understand your facility's current energy consumption and identify critical equipment. Research energy efficiency upgrades and the feasibility/cost of backup power for essential operations. Factor potential modest increases in utility costs into budgets for the next 1-3 years.
• Real Estate Owners: Stay informed about how any HECO restructuring might affect utility infrastructure availability and costs for existing and future tenants. Incorporate potential increases in operating expenses for commercial properties into lease negotiations for renewals.
• Investors: Follow regulatory news and HECO's strategic communications. Analyze the potential impact of regulatory changes on HECO's financial health and dividend potential, as well as on the operating costs of companies within your portfolio that are heavily reliant on grid power.
• Tourism Operators: Monitor any public discourse or legislative proposals that suggest changes to power reliability standards. Assess the financial implications of potential temporary service disruptions and consider investing in non-grid backup power for critical guest services.
• Entrepreneurs & Startups: When making decisions about facilities or operational scaling, factor in the current uncertainty surrounding energy costs and reliability. Evaluate the resilience of your business model against potential energy price shocks or service interruptions.
• Agriculture & Food Producers: Track potential changes in agricultural electricity rates and the reliability of power for irrigation and cold storage. Explore energy-efficiency incentives and alternative energy solutions like solar or battery storage where feasible.
• Healthcare Providers: Review existing backup power systems and their capacity. Understand HECO's contingency plans and stay informed about any HECO-driven changes that could impact the reliability of essential services. Ensure critical care equipment has adequate, tested backup power.