Hawaiian regulators have not yet given their approval to the proposed utility merger there between Hawaiian Electric Utilities and NextEra Energy. But the two entities may still talking as if the deal could go through.
While a decision was supposed to happen at the end of last week, the Hawaii’s top utility regulator now says one could come by by the end of the month. Or one may never come — if NextEra pulls out of the deal, which it has never said but which many experts think may happen. That’s because of the local Hawaiian opposition.
The goal of the combined companies is to improve efficiencies and to increase productivity. As those synergies start to escalate, the hope is that the savings would flow back to both ratepayers and shareholders, who benefit in the form of greater dividends. At the same time, any combined entity would be better positioned to invest in new technologies so that it could comply with tougher federal and state environmental regs.
But opposition to the merger has been visceral, especially in Hawaii where stakeholders are not only opposed to an “absentee” owner based in Florida but who have also said that NextEra does not have a good track record when it comes to rooftop solar. As a result of the kickback, though, some experts say that NextEra might withdraw its bid. That is possibly why the Hawaiian regulator has been treading water, in addition to the local opposition there.
“There is a strong sense that this deal is in a downward spiral,” said Earthjustice Attorney Isaac Moriwake, who represented Sierra Club throughout the merger talks, as quoted in Utility Dive. The Sierra Club is one of 20 formal opponents to the merger, the news outlet reports.
“Almost nothing has gone right for NextEra since the evidentiary hearings began,” Moriwake added.
Both NextEra and Hawaiian Electric say that they want to significantly increase their use of renewable fuels while decreasing the rates that Hawaii’s consumers are paying by 20 percent, all by 2030. That’s potentially doable as, oddly, Hawaiian Electric receives 71 percent of its electric generation from oil-fired units, which compares to a U.S.-average of less than 1 percent — making the state the most expensive place in the country to generate electricity. By mid century, NextEra said Hawaii could be fueled with nearly all renewables.
Florida-based NextEra made a bid for the Hawaiian company in December 2014. And if it passes regulatory muster, it would be a $4.3 billion deal.
What about the physical distance between Florida and Hawaii? This is “more of a strategic transaction to develop a successful regulated business model in high distributed-generation regions, lessons (that could) then be applied to other acquisitions on the mainland,” says Bill Kemp, founding partner for consulting firm Enovation Partners in Florida, in an interview.
Both companies have a built a large renewables business, he adds. “Now they want to find a way to reduce overall customer bills while they upgrade their generation fleet and put in smart grid technologies, while learning to operate ‘micro-grids,’” that are small-scale power grids.
NextEra’s expertise comes mostly from building utility-scale solar plants outside of its territory whereas Hawaiian Electric’s know-how comes from the rooftop solar and microgrid business. And that’s the business in which the Florida utility thinks that it can build in those areas of the country that are rolling out distributed assets.