Keep eyes on Connector, HEI sale

The general outlook for business in Hawaii in 2015 appears bright. Tourism is at record highs; construction is getting a boost from rail and Kakaako development; and inflation is in check thanks to lower oil prices. A strong economy means a tight labor market. Unemployment in Hawaii is at its lowest since 2008, and that could lead to high wages or improved benefits as companies compete for talent. Other likely sources of headlines in 2015 include Hawaiian Electric Industries, whose sale to a Florida company is pending; and the Hawai‘i Health Connector, which is hoping to improve on its poor performance in 2014.

JOBLESS RATE SINKING

Hawaii’s 4 percent unemployment rate is rekindling memories of years past.

It was commonplace for Hawaii employers to post "Help Wanted" signs in 2006 when the state unemployment rate was half the national average.

Then the recession hit at the end of the following year, the economy went into the tank and unemployment soared from 2.3 percent at the end of 2006 to 7.1 percent in July and August of 2009.

Now the state’s seasonally adjusted jobless rate is plunging again and in November reached its lowest level in more than six years. It was the fourth straight monthly drop, and given the state’s improving economy, there’s no telling how much further it may fall in 2015. By comparison, the U.S. unemployment rate in November was 5.8 percent.

The last time the state jobless rate fell below 4 percent was in June 2008, when it hit 3.9 percent. Its all-time low was 2.3 percent in October, November and December 2006.

Hawaii economists are calling for stable growth this year and the labor force, which includes those who are employed and others who are unemployed but actively seeking work, hit a record 669,850 in November. Through the first 11 months of 2014, the labor force was up by 17,000 over the same period a year earlier.

The 4 percent threshold already is below the natural rate of unemployment for Hawaii, which is about 4.5 percent, according to Eugene Tian, the chief economist for the state Department of Business, Economic Development & Tourism. The natural rate of unemployment is the perceived level at which anyone who wants a job can find one, Tian said.

NEXTERA TO BUY HEI

Hawaii’s biggest business story of 2014 was the offer by Juno Beach, Fla.-based NextEra Energy Inc. to buy Hawaiian Electric Industries Inc. for $4.3 billion. You’ll be hearing a lot more about that potential purchase this year as the two companies try to win regulatory and shareholder approval for the deal.

The companies said they expect the sale to close by the end of 2015. In the meantime, the 95 percent of the state’s utility customers served by Hawaiian Electric will be taking a close look at NextEra.

The company is promising to lower electric rates in Hawaii by using its expertise in grid technology and its superior buying power. It has a history of favoring large-scale, centralized power generation over distributed power that has gained popularity in Hawaii. NextEra CEO Jim Robo says it’s more economical to build large solar farms than to put solar systems on each roof. Robo also advocates phasing out tax rebates for solar systems, which have led to 11 percent of Hawaiian Electric customers putting solar on their roofs.

NextEra’s Florida utility, Florida Power & Light Co., gets about 70 percent of its power from natural gas, and Robo expects Hawaii can save money by switching its power source to liquefied natural gas from oil. NextEra is also interested in the possibility of building a two-way power cable between Maui and Oahu. That would allow Maui to send excess power to Oahu or vice versa.

Robo promised not to layoff any of Hawaiian Electric’s 2,800 workers for the first two years after NextEra takes over, but said he could not promise to avoid staff cuts after that. In 2013, NextEra launched a program to cut about 1,000 positions from its 15,000-member workforce and save a projected $75 million per year.

CONNECTOR SEEKS FUNDING

The Hawai‘i Health Connector may be in for its most challenging year ever in 2015, the first year of operating without federal funds.

The state’s health insurance exchange created by the Affordable Care Act, also known as Obamacare, is projecting a $2.5 million deficit in 2015 when it is cut off from the remainder of $204.3 million in federal grants.

"We’re doing everything we can to avoid an emergency appropriation," said the Connector’s executive director, Jeff Kissel. "We definitely are reducing staff and costs. We’re learning how to operate a little more efficiently."

Federal dollars can still be used for further development of the online insurance marketplace, but not for ongoing operations.

Kissel said the Connector has saved money on its technology and has decided not to expand its workforce as planned because "our computers are working better."

The Connector, which began providing health coverage to residents in 2014, has never fully recovered from a slow start, marked by the poor performance of its website.

But it is slowly gaining traction, Kissel said.

The nonprofit has enrolled more than 15,000 people to date, up from fewer than 500 a year ago, and estimates it will generate between $950,000 to $1 million in revenue from a 2 percent service fee on plans in the fiscal year that ends June 30.

The Legislature appropriated $1.5 million for Connector operations next year, one-third of its $4.7 million request.

In the worst-case scenario, if the Connector is unable to generate enough money to sustain operations, the federal government would step in to run the state exchange.

"Right now I’m cautiously optimistic that we are gaining more traction and I’m hoping we don’t have to go there," Kissel said. "We’re enrolling more people sooner than we had anticipated, so our revenues are a little higher than we thought. If we can extend one more life, two more lives, 100 more lives then that’s our job."