ValueAct Takes Stake in Hawaiian Electric for Renewable Push

(Bloomberg) -- ValueAct Capital Management has taken a stake in Hawaiian Electric Industries Inc. and will push the utility to accelerate its use of renewable energy and end its dependence on imported oil.

The San Francisco-based hedge fund has bought more than $50 million of shares in Hawaii’s biggest utility through its ValueAct Spring Master Fund LP, an environmentally focused fund it launched this year, Chief Executive Officer Jeff Ubben said in an interview.

“We think that Hawaiian Electric will be rewarded by the markets for pulling forward a sustainable business model,” Ubben said. “By future proofing its business and using technology, it has the potential to be the utility of the future."

Hawaiian Electric’s stock rose as much as 3.3 percent, hitting its highest level in more than 10 months in intraday trading. Shares were up 1.5 percent to $36.78 at 3:33 p.m. in New York, giving the company a market value of about $4 billion.

“We welcome active, constructive engagement with all of our shareholders,” Hawaiian Electric said in a statement. “Engaging with holders across our investor base is a key part of building and maintaining long-term value for our shareholders and other stakeholders. We look forward to continued productive engagement with ValueAct.”

Renewable Savings

If oil prices rise and the costs of renewable energy keeps dropping, Hawaii could get more than 80 percent of its power from renewable sources by 2030 and generate about $6.5 billion in electric system cost savings between 2020 and 2045, according to a Rhodium Group study cited by ValueAct. The state has set a target of getting all of its electricity from renewable sources by 2045.

Hawaiian Electric would benefit too, Ubben said.

That’s because the company relies on pricey imported oil to generate power for its roughly 460,000 customers, who pay the highest electricity prices in the country. ValueAct estimates that nearly half of the utility’s electricity rates are driven by its oil costs.

Institutional investors are increasingly pressing companies to address environmental, social and governance issues that could cost them decades down the road. The idea is to protect returns over an indefinite investment horizon rather than focus on short-term profit.

Hawaiian Electric isn’t Ubben’s first green push with the Spring fund. He took a stake in AES Corp. and joined the the power producer’s board in January, pushing it to use cleaner fuels. Its shares have climbed almost 40 percent since then.

In May, he announced a position in Unifi Inc., which makes environmentally friendly textiles.

Under Pressure

ValueAct’s investment in Hawaiian Electric comes as utilities are under pressure from customers and policy makers to adopt more solar and wind power, which have fallen in cost. California recently passed a law requiring its utilities to source all electricity from carbon-free sources by 2045. New York wants half of its power to come from renewable energy by 2030.

Hawaiian Electric serves about 95 percent of the state’s 1.4 million residents, according to company filings. The utility’s residential rates are nearly three times the national average, according to government data. As a result, almost 20 percent of its customers have installed rooftop solar systems as a way to reduce their power bills.

The utility got about 27 percent of its electricity from renewable sources in 2017, with the rest mostly coming from oil, according to company filings.

Two years ago, state regulators rejected a bid by Florida utility NextEra Energy Inc. to buy Hawaiian Electric over concerns about the transaction’s benefits for ratepayers.

State officials and regulators have been encouraging Hawaiian Electric to adopt renewables more quickly.

The utility can have a future business model akin to other platforms like an Amazon.com Inc. for marketplace sellers, Ubben said.

Hawaiian Electric can provide a "smart, open network to allow for plug-and-play third party energy developers as well as rooftop solar and storage plus electric vehicles,” he said. “Through cheaper distributed energy solutions and efficiencies, the grid grows by lowering the cost of electricity to stimulate more use cases.”

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