December 23rd, 2020
Energy , Policy , Press Release
Order establishing performance-based regulation framework for Hawaiian Electric aims to lower customer bills and accelerate progress to 100% renewable energy
HONOLULU (Dec. 23, 2020)—Today, the Hawai‘i Public Utilities Commission issued a historic decision adopting broad reforms for how the Hawaiian Electric Company (HECO) makes money and runs its business. The Commission explained that it made the changes to “sustain the momentum towards transforming [HECO] into a utility of the future” and give HECO better incentives to reduce customer bills by advancing Hawai‘i’s clean energy goals.
The Commission decision breaks from the century-old system where utility profits were based on how much capital the utility spends. Instead, the Commission has established a new system of “Performance-Based Regulation” that “continues the transition away from traditional . . . regulation and will better align [HECO]’s financial incentives with customer needs and the State’s policy goals.” As a result, “customers will benefit from lower utility costs and see greater integration of renewable energy resources, while [HECO] will have the opportunity to improve their financial position through improved efficiencies and by earning rewards for exemplary and high-quality service.”
The Commission’s 264-page decision is a landmark ruling for the entire nation, putting Hawai‘i at the leading edge for realigning the electric utility business with a 100% clean energy future.
“It’s been a long road, but the Commission’s bold decision today puts “cost-plus” regulation in the rearview mirror,” said Ron Binz, former Chair of the Colorado Public Utilities Commission, and an expert for Blue Planet Foundation. Binz and Blue Planet filed the first proposal to move utility regulation in Hawai’i in a new direction in October 2014. “This decision puts Hawai‘i in the lead nationally by reforming regulation to achieve a ‘win-win-win’ for customers, the utility, and the environment and climate.”
“This order comes at a crucial time,” said Melissa Miyashiro, Blue Planet’s managing director of strategy and policy. “As we work collectively to rebuild from the COVID-19 pandemic while also urgently rising to meet the challenge of climate change, the Commission today is signaling that the time to reimagine the future is now. It provides assurance that we won’t be going back to business as usual and we can further accelerate Hawai’i’s march toward a carbon-free future.”
Today’s decision concludes a two-and-a-half-year process involving multiple parties—including Blue Planet, who partnered with Mr. Binz and Isaac Moriwake, a clean energy attorney with Earthjustice. The Commission opened the case in April 2018, around the same time that the Hawai‘i state legislature enacted the Ratepayer Protection Act. That pathbreaking law, the first in the nation, mandates the use of performance-based regulation to “break the direct link” between utility revenues and investments and instead link utility revenues to performance.
Blue Planet has been advocating for reforms of utility incentives for more than a decade, and it continued to push for transformative changes in this multi-year proceeding. Blue Planet, for example, proposed financial incentives for the utility to aggressively shift from fossil fuels to renewable energy. These proposals built on Blue Planet’s previous success in 2017 in ending HECO’s pass-through of 100% of its fossil fuel costs onto its customers, instead requiring the utility to share in a percentage of those costs.
In today’s decision, the Commission reiterated that “it is evident that further action is required to achieve the goals of a financially healthy utility supporting the State’s clean energy future.” HECO’s traditional business model posed a roadblock to progress, where HECO made money by building and maintaining its own centralized infrastructure. This created an inherent bias toward postponing the retirement of fossil-fuel plants, expending capital on utility-owned projects, and deterring customers from installing rooftop solar. In contrast, performance-based regulation seeks to unlock new opportunities for the utility to make money by supporting customer choice and the state’s clean energy goals.
The main features of the new performance-based system include: