Wells Fargo analysts downgrade odds of NextEra-HEI merger to 50-50

Dive Brief:

Analysts at Wells Fargo Securities have reportedly downgraded their expectations for approval of the proposed $4.3 billion dollar acquisition of Hawaiian Electric Industries (HEI) by NextEra Energy, giving the deal a 50-50 chance of going through.
Wells Fargo had previously projected a 75% chance of approval for the merger, Pacific Business News reports, but lowered its expectations after meetings with both companies' executives.
Wells Fargo also downgraded its expectation of HEI market performance and concluded the parent of Hawaii’s dominant electricity providers will not outperform the market, PBN reported.

Dive Insight:

The Wells Fargo analysis comes on the heels of a series of ominous signs for the proposed merger of Hawaii's dominant electricity provider with Florida-based NextEra. This summer, Hawaii Gov. David Ige announced he opposes the acquisition, and opposition groups have formed a coalition to push for a publicly-owned utility as an alternative to the deal.

“We increasingly worry that the cultural barriers may be too difficult for [NextEra Energy (NEE)] to overcome,” the Wells Fargo analysis concluded, according to PBN. “It has been made clear to us in recent meetings with NEE that management is more than willing to walk away from the deal if they view Hawaii’s terms to be unreasonable."

"Bottom line," the analysis concluded, "NEE wants but does not need to acquire HEI."

The most recent blow to the deal came when the PUC rejected the Hawaiian Electric Company (HECO) Power Supply Improvement Plan (PSIP). The commission noted “significant concerns” and unequivocally rejected the plan proposed by HEI’s main subsidiary.

Despite commission guidance, the PSIP raised a long list of commission concerns about costs and risks, about failing to plan for renewables, about over-investment in liquefied natural gas (LNG) infrastructure, and about not adequately protecting ratepayers.

“The investment strategies proposed by the HECO Companies appear to entail risks that are borne ultimately by customers,” the commission decided.

In HECO’s response — filed on Tuesday — it promised a public comment period and a full update by April 1, 2016, that will include recognition of the 100% renewables by 2045 mandate and address Gov. Ige's concerns about the utility's plan to import liquefied natural gas.