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Hawaiian utilities forecast big capital expenditures regardless of merger outcome

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Hawaiian utilities forecast big capital expenditures regardless of merger outcome

Executivesof Hawaiian Electric IndustriesInc. outlined a robust level of capital expenditures forecastthrough 2018 during a first-quarter earnings call May 4. The executives saidthe companies are prepared to follow through with the projects regardless ofthe outcome of the pending merger with NextEraEnergy Inc.

HEIprojects its utilities will increase capital expenditures from $319 million in 2015to at least $450 million in 2016, $480 million in 2017, and $500 million in2018, which could lead to rate base growth of 5% to 7% by 2018.

ExecutiveVice President and CFO James Ajello said much of the CapEx numbers are embeddedin the companies' power supply improvement plans filed in April with the HawaiiPublic Utilities Commission and that much of those expenditures depend onfuture PUC decisions on specific projects.

HEIPresident and CEO Constance Lau and Ajello both emphasized HEI will continue todeploy its policy of maintaining investment grade ratings, and the projects, asoutlined, are financeable with the ratings the company maintains. "Youwill not see any difference in our policies and practices from prior years so,as the Public Utilities Commission approves the capital expenditures, we willmake sure they are executable and financeable," Lau said.

Ajellosaid the companies assume the projects will go forward regardless of the mergeroutcome and that a 50-50 balance of equity and debt will be maintained.

Thelargest project is a smart grid, which is pending PUC approval and would havean annual expenditure by 2018 of $96 million. The smart grid has multiple plantin-service stages from 2017 through 2021, according to a company during theearnings call.

Otherlarge projects include the Hamakua Energy Partners project, with $85 millionearmarked for 2016, which is also pending approval, as well as the SchofieldGenerating Station, which has received approval with estimated expenditurestotaling $152 million over three years and an in-service date of 2018.

Theutilities also are seeking approval of the so-called Enterprise ResourcePlanning software project, with an estimated $82 million price tag for HEIutilities Hawaiian Electric Co.Inc., Maui ElectricCo. Ltd. and HawaiiElectric Light Co. Inc.

Analystsasked about the prospects of extending the merger agreement between NextEraEnergy and HEI, which is due to expire on June 3. The utilities had expected aPUC decision by then. Lau declined to comment on whether the companies haddiscussed any arrangement for renewing the agreement but noted it is notnecessary for the agreement to be formally extended.

AfterJune 3, either company can break off efforts to merge, but the companies do nothave to take further action before the PUC issues its decision, she said.

However,upon termination of the merger agreement under specified circumstances, NextErawould be required to pay HEI a termination fee of $90 million and reimburse HEIfor up to $5 million of its documented out-of-pocket expenses incurred inconnection with the merger agreement, according to HEI's filed on Feb. 23.

OnMay 2, HEI's utilities filed post-evidentiary hearing reply briefs. The filingswere the final step before the PUC makes a decision, Lau said. However, shesaid the commission is not obligated to reach a decision before the mergeragreement officially expires.