The overall revenue increase of 9.7%, or $28.2m requested for Maui, Molokai and Lanai is needed to help pay for capital improvements and increased operating and maintenance costs, said the company.

The case also serves as the starting point for a new regulatory model that could move the utility away from earning revenues based on the amount of electricity sold and instead encourage the utility to help its customers use less electricity and install more distributed renewable generation.

As part of the energy agreement signed under the Hawaii Clean Energy Initiative, Maui Electric, Hawaiian Electric and Hawaii Electric Light Company agreed, along with Hawaii state governor Linda Lingle, the State of Hawaii Consumer Advocate, and the State Department of Business, Economic Development and Tourism, to pursue a new regulatory model alled “decoupling,” that would delink the earning of revenues from electricity usage.

Ed Reinhardt, president of Maui Electric Company, said: “This could be a game changer that sets a new environment for us to work even more with our customers to help them use energy efficiently and to use more renewable resources.”

The PUC and the Division of Consumer Advocacy will conduct a review of the rate request, and any rate increase, if approved, is not expected to take effect until mid-2010 at the earliest. At that time, it will have been almost three years since MECO’s last general rate increase. MECO’s last rate increase, amounting to 3.7%, was received in December 2007.

MECO’s requested increase would cover more than $122m in new capital projects to improve service reliability. The company’s requested increase would also cover costs for inspections of utility poles and lines and increased tree trimming around power lines for greater reliability, and servicing of generating units to maintain efficiency, the company said.

The proposal also includes a lower depreciation expense which incorporates new proposed depreciation rates that distribute recovery of the cost of capital assets over a longer period of time.

The PUC is expected to hold a public hearing on the proposed 2010 increase in the next few months and an evidentiary hearing in mid-2010.

Maui Electric is a subsidiary of Hawaiian Electric Company, which is owned by Hawaiian Electric Industries.