Regulators have approved Hawaiian Electric Co.’s request to use federal stimulus money to help pay for smart grid technology that will save its customers an estimated $18 million while eliminating the need for underground construction in urban Honolulu.

The utility will use the $5.3 million grant to pay for about a third of the smart grid project at a major substation serving an area from Manoa through Kaimuki and Kahala to minimize the impact of future power outages.

HECO will install computerized, automated controls that will speed up troubleshooting during blackouts and reduce outage times, the company said in a news release.

The project is part of the second phase of the local utility’s East Oahu Transmission project, which aims to boost its reliability in Honolulu’s urban core.

“This smart grid project is part of our overall effort to upgrade our system to improve reliability, increase efficiency and support the use of more clean energy,” said Robbie Alm, HECO executive vice president.

Before receiving the federal grant Hawaiian Electric had planned to spend  $28 million to install 1.9 miles of underground transmission lines between Kakaako and McCully, potentially tying up traffic for months.

The alternative smart grid project will cost an estimated $15.4 million. The federal grant lowers the cost to customers to $10.1 million. The project is expected to be completed by 2012.