Hawaiian Electric Industries Inc. has been among the utility owners most vulnerable to challenges casued by distributed solar power, in a state with the most expensive electricity rates in the nation. As customers defect to generating their own electricity from rooftop systems, the utility has said it aims to cut rates by 20 percent over the next 15 years by increasing renewable energy to 65 percent of its electricity mix.

“It makes a lot of sense for NextEra with all the renewables that Hawaiian Electric was going to do,” Tim Winter, an analyst at Gabelli Co. in Rye, New York, said in a telephone interview. NextEra is “the premier renewable energy builder and developer and really good at transmission.”

NextEra Chairman and Chief Executive Officer James Robo said he sees Hawaiian Electric, which serves 95 percent of Hawaii’s population, as a testing ground for the expected transition from fossil-fuels to power generated from the sun and wind.

“You can think about Hawaii as a postcard from the future of what’s going to happen in the electric industry in the United States,” Robo said by phone yesterday. “As renewable generation gets cheaper, as electric storage becomes more efficient and possible, all electric utilities are going to have to face this.”

About 11 percent of Hawaiian Electric customers have rooftop solar systems, the highest penetration in the U.S., according to the Honolulu-based utility owner.

Solar Incentives

Solar electricity, helped by federal and state tax incentives, is already as cheap as utility-supplied power in 10 states including Hawaii, Deutsche Bank AG said in a report published in October.

NextEra can use its expertise in integrating more renewables and transitioning to cleaner fuels while lowering customer bills in Hawaii, Robo said. Hawaii relies on expensive imported oil for its generators. NextEra has experience in weaning its Florida utility, FPL, off the fuel, reducing its reliance by more than 99 percent since 2001, he said yesterday during a conference call with investors.

“Given NextEra’s track record, I would think they would probably increase the operational efficiency of the company, which over the long-term should lead to lower customer bills,” said Paul Patterson, a New York-based analyst for Glenrock Associates LLC.

LNG Imports

NextEra, the nation’s largest buyer of natural gas, can also use its expertise to help Hawaii import liquefied natural gas to burn to make electricity, said Hawaiian Electric Chairman and CEO Constance Lau in a conference call with investors.

“This is a phenomenal opportunity for us to accelerate clean energy here in Hawaii,” Lau said in a telephone interview.

Holders of Hawaiian Electric will receive 0.2413 shares in Juno Beach, Florida-based NextEra plus a 50-cent one-time dividend for each share they own, the companies said yesterday in a joint statement. As part of the deal, Hawaiian Electric will also spin off the parent of American Savings Bank.

Including an $8 a share estimated value for the bank spinoff, the deal values Hawaiian Electric at about $33.50, the companies said during an investor presentation. That gives a total value of about $3.4 billion.

Without the spinoff, the sale values Honolulu-based Hawaiian Electric at $25.69 a share, or $2.6 billion.

Including debt, the total value of the transaction is about $4.3 billion.

Shares Jump

Hawaiian Electric rose 17 percent to $33.00 after the close in trading in New York. NextEra was unchanged at $104.39.

Hawaiian Electric was incorporated in 1891 from a royal charter by King David Kalakaua, before Hawaii became part of the U.S., according to the company’s website.

The deal requires approval from state and federal regulators, in addition to shareholders. It’s expected to be completed within about 12 months. NextEra won’t make any “involuntary workforce reductions” at Hawaiian Electric for at least two years after the close, the companies said.

Citigroup Inc. is serving as financial adviser to NextEra Energy, and Wachtell, Lipton, Rosen Katz is legal counsel. JPMorgan Chase Co. is advising Hawaiian Electric, with Skadden, Arps, Slate, Meagher Flom LLP as legal counsel.

Lead image: Solar Panels on a Rooftop in Hawaii via Shutterstock