By Frank Cho
Advertiser Staff Writer

Only a year ago, Hawai‘i utilities were facing the specter of increased competition and soaring interest rates that threatened to drive up costs.

Now, in a surprising turnaround, rates are headed back down and the expected competition from alternative power producers and companies selling basic phone services never materialized on a large scale.

"Hawai‘i is kind of insulated from competition because of its isolation," said Joe Coyle, a utilities analyst with Edward Jones in St. Louis.

With that, the outlook for the utilities industry in Hawai‘i this year appears to be pretty good, according to analysts and industry executives. Especially compared with the power shortages plaguing California consumers. But no one is saying Hawai‘i consumers will be entirely untouched this year.

Whatever happens in California, analysts expect higher electricity and natural gas prices this year for Hawai‘i rate payers because of rising fuel costs.

"The rates will increase, but not to the magnitude they will in California so I don’t see wild price swings this year," Coyle said.

Hawaiian Electric Co. Inc., a subsidiary of Hawaiian Electric Industries Inc. and parent of Neighbor Island utilities on Maui and the Big Island, has one rate hike pending before the state Public Utilities Commission this year.

That request, an increase of about $15.5 million annually for the Big Island, is expected to be settled this year. Although analysts believe it is unlikely the company will get the full increase it has requested, rates still will most likely go up.

State regulators already have granted an interim increase of about $3.5 million until they decide on the request. The money will reimburse Hawaiian Electric & Light Co. on the Big Island for improvements and power-generating equipment it already has paid for.

Hawaiian Electric spokesman Chuck Freedman said the company has no plans to make new rate requests to the commission this year.

Demand for power in Hawai‘i is expected to remain stable over the next four years at a growth rate of slightly less than 2 percent.

But it may be higher fuel oil prices that hit consumers’ pocketbooks the most this year. Electricity rates increased as much as 18 percent in 2000 on some islands because of rising oil costs that are being passed along.

To cut down on the need to purchase more oil, Hawaiian Electric is planning to complete agreements this year to buy 33 megawatts of electricity from wind power producers on Maui and the Big Island. About 7 percent of HECO’s output currently comes from alternative power sources, down from the double digits in the late 1980s.

"The outlook for Hawai‘i is good. We certainly intend to make sure that what happened in California doesn’t happen here," Freedman said.

The company is trying to increase the reliability of power production and its delivery systems this year, but has met some opposition to plans to put new overhead lines on O‘ahu.

Verizon Hawai‘i, which dominates the local phone market, said it does not plan to seek any rate increases this year for consumers or business customers.

The PUC is still studying plans that could rebalance phone rates next year, changing the landscape for local phone competition. Verizon wants to increase residential phone service costs for most phone users, which would allow it to lower interisland toll rates without losing revenues.

"Given the way the market is set up, restructuring does make a lot of sense. The good news for Hawai‘i is the economy is improving," said David Parker, a Florida-based utilities analyst with Robert Baird & Co.

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