I can’t help wondering what Hawaiian Electric Industries’ shareholders are thinking Wednesday morning as they gather in downtown Honolulu for the company’s annual meeting.

HEI is the parent of Hawaiian Electric Co. (HECO) and its utility subsidiaries, MECO in Maui County and Helco on Hawaii Island, along with American Savings Bank. The company, largely driven by its utilities, has long been considered one of those stodgy, conservative investments that delivers steady dividends, the kind sought out by retirees, mutual funds, and other institutional investors. Boring, and the more boring, the better.

But recently the company’s been in the news, and the news hasn’t been good.

HECO has been stung by complaints that it’s been slow in approving installation of new residential solar systems, causing the solar industry to stall. Some have said the utility has been taking its time in order to bolster its own profits, which depend on sales of electricity generated by its network of power plants and distributed via its transmission lines.

It’s stock price is down more than 10 percent since the beginning of the year, while the Dow Jones Utilities Average is up about 7 percent over the same period.

And just last week, the state’s Public Utilities Commission appeared to be in open revolt against the company, a turnaround in their longstanding and historically rather cozy relationship.

In a series of decisions and orders, the PUC issued some blunt assessments and direct warnings. Regulators seem increasingly frustrated with HECO’s apparent lack of direction as it seemingly bounces from crisis to crisis.

The PUC called HECO’s “integrated resource plan” — its roadmap for increasing the share of energy coming from renewable resources, including wind and solar — “fundamentally flawed.” It said the company sidestepped issues that had previously been explicitly flagged by the PUC as priorities, and applied “inappropriate and inadequate modeling tools and techniques.”

The PUC called flaws in the company’s plans “substantial and fundamental in nature,” and said its action plans are “excessively ambiguous,” so couldn’t be relied on to provide useful guidance.

The PUC said the company “failed to address certain key aspects and capabilities” of energy storage systems, such as residential or industrial-scaled batteries, that can store energy from solar panels for use at night, decreasing dependence on HECO’s power grid. It said the company’s estimates of the impact of different options on rates paid by its customers were “flawed and unreliable.”

The PUC repeatedly found HECO’s plans lacked “depth,” and that the company failed to provide evidence to back up its positions.

In the end, the PUC gave the company just 120 days to rework its various plans to address the shortcomings identified. And while the PUC said it preferred to give Hawaiian Electric wide latitude to decide how to comply with the state’s energy goals, including dramatically reduced reliance on fossil fuels, it is ready to start micromanaging the process if that becomes necessary.

It’s the kind of dressing down that has to make stockholders squirm and executives start worrying about job security.

Hawaiian Electric isn’t alone in floundering as it searches for a sustainable business model that takes into account the rapid technological changes in the energy world. Utilities appear to have been slow in anticipating and planning for the explosive growth of residential solar and photovoltaic systems, even while cutting edge technologies — especially in the area of batteries and storage — promise to increasingly pit the interests of individual consumers against the conservative interests of the legacy power grids.

The PUC, like regulators in other states, is pushing the utilities to come to terms with the new technologies, and to incorporate them into their business model going forward. But some question whether that is even possible, or desirable.

“The PUC envisions the utility surviving by reforming or changing,” says Henry Curtis, executive director of Life of the Land, who who now covers Hawaii’s energy industry with his excellent “Ililani Media” blog. “The PUC will regulate, continuing its symbiotic relationship with the utility, and we’ll work out the kinks.”

But, Curtis warns, the weakness is that the PUC’s thinking is “confined within a box.”

“A lot of people think that what’s happening in the world will bypass them,” Curtis said. “The market is moving faster than HECO and the PUC.”

For example, the New York Times reported in March that automobile manufacturers are adapting batteries developed for use in electric or hybrid vehicles to the energy storage needs of solar-powered homes. The big car makers —Ford, Honda, Toyota, and Tesla — are all competing to combine their batteries with residential photovoltaic systems. It could be the next big step in distributed energy.

Great for the environment, good for consumers, but not necessarily good economics for traditional electric utilities.

It’s a time of radical uncertainty for utilities like Hawaiian Electric, I’m afraid.

History Lessons

It strikes me that they might be in the same position as newspaper publishers were 30 years ago. Up until then, owning a newspaper seemed to be like a license to print money. Newspapers were a delivery vehicle for advertising, and for a long time held a monopoly on classified ads, the things that made money — help-wanted ads, real estate ads, car ads. Newspapers were big, conservative, and slow to change. For many, it turned out, way too slow.

The first challenge was social in nature. People didn’t want to come home and read about the day’s news when they could just watch it on television. Evening newspapers began closing in cities across the country, victims of social and cultural change.

Then came the Internet. Suddenly you didn’t need a big, expensive printing press to deliver news and advertising. Anybody with a computer could become a publisher. Those classified ads quickly fled to the online world, and newspapers had to compete with online media for the remaining display ads. The business model that had served newspapers for so long was fundamentally undercut.

I doubt anyone really saw the changes coming, or realized just how they would devastate the newspaper industry. Before our eyes, newspapers began folding. Once-household names disappeared, gobbled up by competitors, or were sold at fire sale prices. Newspaper chains, once the source of big profits, suddenly became debt-ridden burdens that were offered up for pennies on the dollar. It’s been a period of upheaval for newspapers, the people who work (or once worked) in them, for those who invested in them, and for those who used to rely on the news they delivered.

Exactly what kind of business model is capable of creating and delivering news in an economically sustainable manner is still an open question, for all practical purposes.

Could the same kind of wrenching change be facing local energy utilities? That solar system on your roof can now provide much of the electricity your home needs, even though most people aren’t yet in a position to cut their ties to the Hawaiian Electric grid. But those batteries or other forms of power storage are likely to make that possible in the near future.

Life of the Land’s Curtis thinks traditional utilities like HECO will run into a wall of technological change much sooner than we think.

Today you can buy small solar panels at local retailers that will charge cell phones and other small devices. Tomorrow we’re likely to see private microgrids set up by large commercial customers, posing a new challenge to the utility that is equal or bigger than the challenge of residential solar.

“Most people misunderstand Hawaiian Electric’s monopoly,” Curtis says. “By law, they have the right to operate the utility and get a financial return, but they do not have an exclusive right to the grid. Right now, there’s no law preventing somebody else from setting up a rival grid.”

“I would imagine the first to go will be large commercial centers like Ala Moana Center, the University of Hawaii, or Queen’s Hospital,” Curtis said. Some large hotels have made partial moves toward self-contained energy systems already.

Combining solar systems with gas or battery backup, they could save money by leaving HECO behind altogether. Curtis thinks such projects could also produce surplus electricity that will eventually be offered for sale to others. A microgrid is born.

It’s just one of the scenarios that must be keeping HECO’s energy planners, the utility’s management, and lots of politicians, awake at night.

Will HECO’s management confront these issues head-on at their annual shareholders’ meeting?

I hope so. We all have a stake in the outcome, since most of us are tied to their grid for reliable, continuous power — like it or not — at least for the intermediate future.

Read Ian Lind’s blog at iLind.net.