Updated 11:38 a.m., 7/26/2013
Editor’s Note: This is part of an ongoing series on the Hawaii Public Utilities Commission as it nears its 100th anniversary.
Electric bills have doubled over the past decade in Hawaii as state regulators search for sustainable ways to provide power to thousands of homes and businesses.
Meantime, utility executives are banking millions of dollars in annual salaries and benefits while they bemoan declining sales due to more people going off the grid.
The public’s patience is running on fumes. Residents want relief from high prices today without compromising long-term goals of using more renewable energy and less imported oil.
One underfunded state agency, the Division of Consumer Advocacy, is responsible for protecting the public’s interests.
A staff of roughly 15 people and a handful of expensive consultants go up against Hawaiian Electric Industries, a multi-billion-dollar business, in quasi-judicial hearings each year that determine electric rates. Outgunned, the result is settlements that often favor the utility.
“Consumers find it offensive that electric rates are so high and HEI executives are so well compensated,” DCA Executive Director Jeff Ono told Civil Beat in a recent interview. “We’re well aware of that.”
Some critics say the Consumer Advocate’s office is so ineffective that it should be abolished. But others say they remain hopeful because they’ve seen unprecedented reform efforts in recent years.
Ono, a lawyer, has been at the helm for more than two years. He manages a budget of about $2 million, prioritizing its caseload to target projects and consumer issues that have the greatest impact on the ratepayers of utility and transportation services.
Jeff Ono has been Consumer Advocate since 2011.
“People ask what my philosophy is, and I say I’m a dealmaker,” Ono said. “The job is adversarial by nature, so I’m trying to be more collaborative. We try to find compromise.”
Recent deals may be too friendly to Hawaiian Electric Co. and its neighbor-island subsidiaries.
The Public Utilities Commission presides over the rate cases. Its job is to review the project, consider the Consumer Advocate’s recommendations and make a decision.
In the past, the PUC’s decisions would fall somewhere in between what HECO wanted and what the Consumer Advocate recommended. Lately though, the PUC has gone even further than what the Consumer Advocate suggested.
A recent case involved Maui Electric Co.’s rate request. In July 2011, MECO asked the PUC to let it boost revenues by $23.5 million. The Consumer Advocate said that was way too much and the PUC agreed, signing off on an interim increase of $13.1 million as recommended.
But when it came time for final approval, the PUC dug deeper into MECO’s economics. In May, the commission cut MECO’s return on investment from 10 percent to 9 percent and ordered the utility to return more than $8 million to its customers.
The Consumer Advocate measures success in part by tracking the percentage of its positions with which the PUC ultimately agrees. Historically, that’s been about 80 percent of the time, Ono said.
But he is going to change the metric starting next year.
Instead of just looking at how many cases the commission agrees with as a whole, Ono said his office is going to track how many elements of each recommendation the PUC signs off on, such as expense items or a proposed return on equity. This itemized approach will be less subjective, Ono said.
Henry Curtis is one person who sees a lot of room for improvement in the Consumer Advocate’s office. He’s been directly involved with electric rate cases and energy planning for years in Hawaii as head of the nonprofit Life Of The Land and an appointed member of special PUC committees.
“In many cases, the Consumer Advocate seems to bend over backward to defend the utility and make them sound like the good guy,” he said. “They’re too soft and not very community friendly.”
Curtis noted that even the entrance to the Consumer Advocate’s office in downtown Honolulu has a layer of security — locked doors and a holding room of sorts — not found in other state agencies.
But it’s not an entirely negative outlook. Curtis and others, such as Sally Kaye, who has fought against wind farms on Lanai, see improvements in community outreach efforts and accessibility.
Curtis said it was refreshing to see the Consumer Advocate attend meetings on Molokai earlier this year to discuss clean energy initiatives and plans for the future.
“The division is only as ‘good’ as who is in charge at any given time, and right now I think we are very, very fortunate,” said Kaye, who is part of the PUC’s 68-member Integrated Resource Planning group.
“I’ve developed a huge amount of respect for Jeff Ono over the past year’s IRP process, as an honorable man and straight-shooting CA,” she said. “But I think, as is true of the PUC, that the office of the CA is insufficiently supported with staff and resources, and engages in a lot of ‘settlement’ agreements with the utilities that are not necessarily always in ratepayers’ best interests.”
The staff currently includes administrators, a secretary, a transportation/utilities officer and specialist, an education specialist, rate analysts, researchers, engineers, attorneys and clerical support. The personnel levels and budget have fluctuated over the past several years.
In 2008, the Consumer Advocate had $1.88 million in expenses and 25 employees, including a tariff analyst position. The staff was cut to 15 employees the next year, but expenses soared to $2.56 million.
Ono said the reason he has a bigger budget now but fewer employees is there are more dockets of a more complex nature that require expert consultants. He didn’t have the numbers handy, but said a “big chunk” goes to paying consultants in electric rate cases.
HECO uses experts who have significant experience because they are testifying in rate cases nationwide every month. But the Consumer Advocate’s in-house experts, on the other hand, go through these hearings annually. So by hiring consultants, Ono’s office is trying to level the playing field, he said.
Finding people who are comfortable testifying in rate cases before the PUC is another issue the Consumer Advocate’s office has struggled to overcome. Ono said many engineers would prefer to remain at their desks working on the technical aspects of the projects, not diving into the politics before the commission.
Most engineering jobs don’t require the employee to testify on a case, Ono said. It’s difficult to find people with the necessary qualifications — and to do the work on a state salary. Some job openings have gone unfilled for more than a year.
Still, Ono said his office accomplishes a lot with the resources it has.
The Department of Commerce and Consumer Affairs, which the Division of Consumer Advocacy falls under, highlighted some of the ways Ono’s office served the public in 2012.
The Consumer Advocate knocked $755,000 from HECO’s revenue request by pressing the utility over HEI CEO Constance Lau’s reported $5.8 million executive compensation package, a figure that caused a public outcry.
UPDATED The office also caught what it believes is a “phantom income tax” expense in Young Bros.’ request for a 29 percent rate increase, almost $17 million. Ono argued that Hawaii’s consumers should not be required to pay the personal income taxes of the shareholders of Young Bros.’ corporate parent, Saltchuk.
The Consumer Advocate and Young Bros. eventually reached a settlement, except the inclusion of the corporate income tax expense in the company’s cost of service. The PUC issued its decision Dec. 16, 2011, approving a 17 percent rate increase with the inclusion of the income tax expense.
The report also points out settlements which lowered the overall rates required to be recovered from ratepayers for projects. In 2012, for instance, the Consumer Advocate entered into a settlement with HECO that resulted in a $9.5 million drop in its East Oahu Transmission Project. The total cost of the project was originally more than $53.5 million.
But there are looming challenges. One of the mysteries Ono hopes to solve is why Hawaii’s wind and solar electric rates are double those on the mainland.
He raised the point with lawmakers in January, noting the Consumer Advocate in some instances doesn’t have access to the information it needs to figure out the problem. In particular, renewable energy companies are not releasing critical cost data.
The Legislature considered two bills that would have let the PUC and Consumer Advocate view financial records on a confidential basis to see why prices have not come down, Is it just the cost of doing business in Hawaii, as some renewable energy companies say? Or are they making excessive profits? Both bills died this past session.
Jeff Mikulina, head of the energy nonprofit Blue Planet Foundation, said the Consumer Advocate’s mission needs to evolve with the changing public dynamic. Consumers demand lower electric bills but want green energy.
He said the Consumer Advocate can’t just represent the cheapest energy today, because it likely won’t be the most cost-effective source tomorrow.
Ono said he remains focused on the future. He said he doesn’t want the state to lose its momentum in pursuing more renewable energy just because oil prices are steadier.
“One of the policy decisions for this office is whether it’s worth spending a little more money now to help us in future,” Ono said. “That’s what keeps me up at night.”
Check out the January presentation that the PUC, Consumer Advocate and HECO gave to lawmakers here: