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Hawaiian Electric Lowers Guidance

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Hawaiian Electric Industries Inc. (HE - Free Report) provided a financial update and lowered its earnings guidance for 2013. The lowered guidance reflects Maui Electric Company, Limited’s (MECO) 2012 test year final rate case decision and order (D&O) issued by the Public Utilities Commission of the State of Hawaii (“PUC”).

The company expects adjusted earnings per share in the range of $1.54 to $1.64 and GAAP earnings in the range of $1.52 to $1.62 per share. The guidance reflects $7.8 million lower MECO annual revenues as a result of the final D&O. With its first quarter results, the company had declared 2013 earnings guidance in the range of $1.58 to $1.68 per share.

For Hawaiian Electric Company, Inc., the company expects adjusted earnings per share in the range of $1.19 to $1.25 and GAAP earnings per share in the range of $1.17 to $1.23.

On May 31, 2013, the PUC issued a final D&O in the MECO 2012 test year proceeding. It approved an increase in annual revenues of $5.3 million. However, the increase was $7.8 million less than the interim increase that had been in effect since Jun 1, 2012. The decline reflects lower return on average equity, customer information system expenses, pension and other postretirement expenses based on a three-year average, integrated resource planning expenses, and study costs.

Also, PUC has approved the revised annual decoupling filings for tariffed rates for all subsidiaries that will be effective from Jun 1, 2013 through May 31, 2014. Decoupling means disassociation of a utility's profits from its sales of the energy commodity. Instead, a rate of return is aligned with meeting revenue targets, and rates are pushed up or down in order to meet the target at the end of the adjustment period.

The company reported first quarter results last month with earnings coming in below the year-ago figure and the Zacks Consensus Estimate. The results reflect higher non-interest expenses and operation and maintenance expenses.

Going forward, we expect the company to benefit from investment in local infrastructure. Also, its common stock offering would bring in capital, and a more modern electric grid and lower-cost renewable energy would benefit customers. The company is trying to reduce its dependence on oil and is constantly seeking ways to increase the use of lower-cost renewables.

However, we remain concerned about the lower electricity volume sales, a tourism-dependant Hawaiian economy and uncertainty over the Japanese economy. The company presently retains a short-term Zacks Rank #3 (Hold).

Stocks worth considering at present are Companhia Paranaense de Energia , CPFL Energia S.A. and ALLETE, Inc. (ALE - Free Report) .  While Companhia Paranaense and CPFL Energia carry a Zacks Rank #1 (Strong Buy), ALLETE, Inc. holds a Zacks Rank #2 (Buy).

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