The innovative 21st century Uber doesn’t have much in common with the Hawaiian Electric Co., which has a rich history in the islands going back to 1891. If it did, Hawaiian Electric customers might just pay less for the electricity they use.

Uber has garnered a lot of attention since the remarkably effective ride-hailing app launched five years ago, competing with the taxi industry around the globe. The company acts as an intermediary, connecting potential drivers to paying passengers who need a ride.

The cost of a ride fluctuates depending on the supply of, and demand for, vehicles as part of the company’s dynamic pricing system. Part of that system involves what the company refers to as “surge pricing,” which involves a sudden spike in the cost of a trip when Uber wants to draw more drivers to pick up customers in a specific area.

You might see “surge pricing” in effect as thousands of fans emerge from a football arena or a Bruno Mars arena concert. If there aren’t enough vehicles around, the company signals to potential drivers that they can make more money in a given area. Once drivers become plentiful enough in that area, the rates go back down, which potentially helps to draw more customers.

So what can this Uber model do for our electricity rates?

Will enough customers stay on the grid to keep the company viable?
Some Hawaiian Electric customers still receive 20th century-style service in which the utility sends an employee to look at their meter each month to tally usage. Flickr

It just might help to match the demand for electricity to supply from many different sources.

In an energy ecosystem increasingly propelled by renewable sources — especially solar, but also wind — it is often most efficient, experts say, if people consume their electricity when it is produced.

After all, we can’t alter when the sun shines or the wind blows, but the electric utility can find more ways to convince customers to consume energy at the time it is made. If done on a large enough scale, this could diminish the growing need for huge amounts of battery storage — still unaffordable and unproven on a large scale, according to most experts — as Hawaii works to satisfy its ambitious 2045 renewable electricity goals.

So how could the power company get customers to consume more electricity during the hours when renewables produce most, and less during the peak consumption hours when renewables are less likely to generate energy?

One way is to use a more dynamic pricing system — and make sure that customers in the most expensive state for electricity know about it — that makes the product much cheaper when the sun is out, and much more expensive while people are still awake after nightfall.

“Right now, the way solar panels are being installed, they are being put on homes where no one is home all day to use the power,” said former Public Utilities Commission chair Mina Morita. By doing so, the former regulator noted, customers are sometimes adding to management challenges of the electric grid, which generally works best when energy flows are fairly even.

The utility could go further with the Uber-style pricing model and raise prices on cloudy and windless days — when less renewable energy is generated — and let rates cascade on long sunny days. Customers, after all, do have some choice in their consumption, like when they decide to run their washing machines or charge their electric cars. The key is to make the market variations large enough to affect customer’s behavior for the greater good.

“There is a huge opportunity,” said Jeff Mikulina, the executive director of the Blue Planet Foundation, which is working to disrupt fossil fuel consumption.

Uber has been handsomely rewarded — the company was valued at an eye-popping $51 billion this summer, for its largely seamless role in continually matching supply to demand in a way that suits customers.

Real-time price variations for electricity, to boost or lessen demand, as necessary, could have a big impact on consumption. “If people realize electricity is cheaper on a sunny day than at 7 o’clock in the evening — when there is no wind (or sun) — people will make the right decisions,” Mikulina said.

Energy production in this flexible pricing vision could be generated by individuals with rooftop solar panels or wind turbines in their backyards, or by large-scale energy producers, including HECO itself, or others. But the utility’s main role would be similar to Uber in that it would focus on calibrating demand to supply, and vice versa.

Hawaii was making progress toward satisfying the 2045 renewable energy generation goals long before those goals were finalized this year. In 1990, 90 percent of electricity in the islands was generated by petroleum. By 2013, oil-based electricity generation had fallen to 70 percent, according to the state statistics office’s recently released report on Hawaii’s Electricity Industry: 2014 Analysis and Recent Trends. In 2014, renewable energy sources generated 15.5 percent of the total electricity sold in the islands.

Still, in 2014, the islands burned a lot of oil to generate electricity; 9,265,797 barrels to be exact.

HECO’s Slow Progress

In a recent interview, Hawaiian Electric Co. CEO and President Alan Oshima laid out a vision of Hawaii’s future in which the electrification of transportation might one day bring down Hawaii’s nation-leading electricity rates, but he also said that prices are unlikely to come down substantially in the short- or mid-term because we live in a high-cost state.

None of that has much bearing on the utility’s commitment to the state’s 2045 goals, he said, noting that the electric company is “on board and moving forward” toward cleaner energy.

“We’re there. The policies are there,” Oshima said. “Our heads are there.”

Chief Executive Officer and President Hawaiian Electric Company Alan Oshima shows some of the wares on the grounds of the company's Ward Avenue headquarters.
Chief Executive Officer and President Hawaiian Electric Company Alan Oshima shows some of the wares on the grounds of the company’s Ward Avenue headquarters. Cory Lum/Civil Beat

Oshima said he believes Hawaii will eventually bring down prices and reach the state’s renewable energy goals thanks largely to future technological advances.

In the shorter term, Oshima — as well as executives at NextEra Energy, whose heavily contested purchase of Hawaiian Electric is now before regulators — said that one initial step to better align supply and demand involves varying electricity rates more according to the time of use, to boost incentivizes for customers to use electricity when it is most favorable for the electric system.

Unlike the dynamic Uber pricing system, this less precise tool doesn’t change with the weather, but it sets clear hourly time windows aimed at affecting customer behavior.

Oshima said, for example, that Hawaiian Electric recently filed time-of-use rates with the Public Utilities Commission to expand the hours when customers with electric cars can enjoy reduced rates to charge their vehicles.

The time-of-use reduction for electric car owners is late at night, based on the premise that there is far lower demand for electricity after 9 p.m., as people start going to bed. The price reduction ends at 7 a.m., when people start using more electricity again. HECO is seeking to expand the reduced-price hours so they apply from 9 p.m. until 3 p.m.

Beyond electric vehicles, the power company also offers voluntary time-of-use rates designed to encourage customers to use energy during non-peak hours and reduce their overall consumption.

These vary in the different counties, but on Oahu the most expensive time to use electricity is between 5 p.m. and 9 p.m., when it is nearly 27 cents per kilowatt-hour. Between 7 a.m. and 5 p.m. on weekdays, it is about 3 cents less per kilowatt-hour. Between 9 p.m. and 7 a.m., rates drop down to 18 cents per kilowatt-hour. So customers can pay one-third as much if they run their appliances late at night.

An Oct. 13 decision by the Public Utilities Commission ordered Hawaiian Electric’s three subsidiaries — on Oahu, the Big Island and in Maui County — to expand their time-of-use rates to allow for solar use, which is cheaper during the day.

Hawaiian Electric is involved in an ongoing process to get demand to sync up better with the increasingly renewable supply, according to Oshima, who expects the process to be reinforced.

These efforts are expected to be followed by the installation of “smart meters” that will allow the electric company to become more responsive as it gathers more detailed information about customers’ electricity consumption.

Smart meters can make it easier for power companies to identify and remedy outages, prepare for usage fluctuations and more effectively target time-of-use pricing. Such meters are sometimes credited with allowing customers to better understand, and perhaps reduce, their own consumption.

Hawaiian Electric has said it will install smart meters by 2021. NextEra, if the merger goes through, promises to complete installation for all HECO customers by 2019.

The energy and regulatory experts at Blue Planet Foundation see the installation of smart meters as a significant but small step that will align Hawaiian Electric with numerous power companies on the mainland, but that doesn’t get the state anywhere near where it needs to be, given the 2045 goals.

To facilitate a more ambitious effort, Mikulina said, the PUC could set up an innovative regulatory framework that gives fresh incentives to HECO.

UBER tent along Farrington Highway. 21 july 2015 photograph Cory Lum/Civil Beat
An UBER tent along Farrington Highway this summer highlights the flexible nature of the supply and demand syncing service. Cory Lum/Civil Beat

For over a century, Hawaiian Electric, which is a natural monopoly, earned increasing revenues based on increasing sales of electricity. In the last decade, as consumption peaked and then went into decline — thanks largely to better conservation, greater efficiency and the rise of the rooftop solar — regulators re-engineered the Hawaiian Electric’s revenue equation. The company now earns a percentage based on what it spends to maintain and improve the electric system.

Blue Planet Foundation wants regulators to reconfigure Hawaiian Electric’s incentives to spur the company to be more responsive to customers and the state’s updated needs as Hawaii attempts to accelerate its shift toward renewable energy sources.

Regulators should set up a framework, they argue, that is suitable to a utility that distributes energy generated by a host of sources, based on various key performance metrics.

Under this “incentivized regulations” framework, the power company would be judged — and potentially rewarded — if it succeeds in objectives like satisfying efficiency metrics, reducing fuel costs, keeping customers happy and helping to achieve renewable energy generation goals.

“Uber is not rewarded for assets; they don’t even have many employees,” Mikulina said, adding that Uber is also essentially agnostic about where its supply of drivers comes from, just as Blue Planet believes Hawaiian Electric should be about who generates electricity.

Uber has been handsomely rewarded — the company was valued at an eye-popping $51 billion this summer — for its largely seamless role in continually matching supply to demand in a way that suits customers.

Mikulina said that the electric company should operate in a similar way, by using its infrastructure and evolving distributed-generation skills to sync renewable energy with supply. “The better they do that job, the more they should make.”

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