Hawaiian Electric Co. wants to increase the typical residential customer's bill by almost $7 a month to help pay for improvements to O'ahu's electrical system.

The company filed yesterday for an overall 7.2 percent rate increase. If approved by the state Public Utilities Commission, the median residential bill would rise from $111.05 to $117.85.

The company estimated the hike, which will affect both homeowners and businesses, would take effect in late fall 2007 at the earliest, after a review by the commission and the state Consumer Advocate.

Nu'uanu resident Andrew Brown, 40, said he expects higher rates will add to the general cost of living as businesses pass the expense along to customers.

"You know it will," said Brown, a public school teacher. "Even what it costs to run the city will be more."

O'ahu customers already pay among the highest electricity rates in the nation.

EXTRA $99.6M IN REVENUE

HECO said it knows paying more won't be easy for consumers and that it weighed the action carefully. It noted, however, the utility is responsible for providing reliable service and that its costs had been climbing. The increase would give Hawaiian Electric $99.6 million in added revenue annually.

HECO also proposed a new tiered pricing structure that's based on electrical use. Residential customers who use more energy will be charged at a higher rate than those who use less (see sidebar).

HECO spokeswoman Lynne Unemori said the tiered system is in keeping with the company's campaign to promote energy conservation. "It rewards those who use less," she said.

State Consumer Advocate Catherine Awakuni said the tiered structure is similar to one proposed by HECO's sister company, Hawaiian Electric Light Co., on the Big Island. HECO has 292,000 customers, about 88 percent of which are residences.

Awakuni reserved comment on the filing until after her office does a thorough review of HECO's rate application and submits a formal written comment to the commission. HECO expects the first hearing will be in the next several months and that an evidentiary hearing will probably occur after the end of September. The PUC review process includes a chance for the public to comment on the rate proposal.

An interim rate increase, though, could be issued 10 or 11 months from now, according to the company.

HECO currently has a 3.4 percent rate hike pending at the commission, of which a 3.3 percent interim rate hike has been granted. Unemori said the new request proposes increasing rates above what's currently pending.

UPGRADES IN MIND

Money raised by the increase would be used to help pay for projects that include a new system operations dispatch center and energy management system that monitors O'ahu's entire grid. An outage management system also will be added next year that would help find outages faster.

Other funds would be used for additional generating capacity that provides power during times of high demand, new substations, replacement of underground lines in Waikiki as well as upgrading generating unit boilers.

Among other utilities in the state, Maui Electric Co. is expected to file for higher rates in the first quarter of 2007. The Maui-based utility's most recent increase was in 1999, when it was granted an 8.2 percent increase.

Hawaiian Electric Light's pending rate request calls for a 9.2 percent increase. The Kaua'i Island Utility Co-op has no pending plans for a rate increase.

HECO's rates are among the most expensive nationally because it costs more to run dependable utility systems in isolated areas and because of the price of oil that's used in most generators here. The oil prices are passed directly to customers through a surcharge that fluctuates each month.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.