At a ceremony at the State Capitol today, Governor David Ige signed into law the Hawaii Ratepayer Protection Act (Act 5 of 2018)—a measure to better align the Hawaiian Electric Companies’ profits with the affordability of electric rates and the utilities’ integration of renewables through performance-based regulation.
“Better aligning the utilities’ profits with customer interests and the state’s clean energy goals is a necessary step in our transition to 100 percent clean energy,” said Jeff Mikulina, Blue Planet Foundation‘s Executive Director. “We applaud Governor Ige’s forward-thinking vision in changing the trajectory for transformation.”
Blue Planet Foundation—a Hawaii-based nonprofit with a mission to clear the path for 100% clean energy—attended the signing ceremony for Senate Bill 2939, along with other nonprofits, stakeholders, government representatives, and industry experts. Blue Planet Foundation has been advocating for performance-based regulation for a number of years and worked with legislators to draft the bill.
“Misaligned incentives come up time and time again as a major source of stalled progress,” said Melissa Miyashiro, Blue Planet’s Chief of Staff. “To bring our 100 percent renewable vision to life, we need implementable policies that will meaningfully move us beyond the status quo. Act 5 is a decisive step forward in an ongoing conversation about the utility of the future and can help ensure that Hawaii stays in its role as a leader on clean energy.”
Under the current regulatory structure, utilities are not directly rewarded for reducing customer bills, adding renewable energy, or increasing the resiliency of the system. Instead, the traditional “cost-plus” system prevalent across the country sets utility profits as a percentage of utility expenditures. The result is a business model that misaligns the interests of customers and utilities by creating an inherent bias toward expending utility capital on utility-owned projects that may displace more efficient or cost-effective options, such as distributed energy resources owned by customers or projects implemented by independent third parties.
In contrast, performance-based regulation could allow the utility to unlock new revenue streams that are aligned, as opposed to at odds, with the state’s clean energy goals and customer choice. Senate Bill 2939—originally introduced by Senator Stanley Chang—sets a deadline for the state Public Utilities Commission (PUC) to establish different incentives and penalties that directly tie electric utility revenues to the utility’s achievement hitting various customer-focused performance metrics.
“In business, we know that incentives drive performance,” said Christine Camp, Vice Chair of the Blue Planet Foundation Board and President and CEO of Avalon Group. “It makes sense to reward the utility for helping to achieve our clean energy future, to reduce customer bills, and to increase reliability.”
The performance metrics that the bill directs the PUC to consider include: affordability of electric rates and customer electric bills; electric service reliability; customer engagement and satisfaction; customer options for managing electricity costs; availability of utility system information and data; rapid integration of renewable energy sources; quality interconnection of customer-sited resources; as well as timely execution of competitive procurement third-party interconnection, and other business processes.
Act 5 builds upon existing efforts to transform the utility’s business model to help the state quickly and cost-effectively reach its ambitious clean energy goals. Last week, the PUC opened a long-awaited docket to generally investigate performance-based regulation for the Hawaiian Electric Companies (Docket No. 2018-0088). Act 5 complements the docket proceeding by adding specificity to the framework for reviewing performance-based utility incentives and penalties while preserving the PUC’s discretion to develop the details of the performance-based mechanism.
“Thanks to the state’s visionary leadership in making Hawaii the first state in the nation to set a goal for 100 percent renewable electricity, all eyes are on us as we seek to implement actual policies—like Act 5 and performance-based regulation—that will turn the goal into reality,” added Miyashiro. “The climate can’t wait for piecemeal, incremental progress.”