In Hawaii’s push to adopt renewable energy, a fact has emerged that not long ago might have seemed improbable: producers now can generate electricity from the sun about as cheaply as they can from some fossil fuels. And they can do it on a big scale.

It’s good news for the environment.

And what about Hawaii consumers? The short answer: they won’t see much in savings anytime soon.

Hawaii utility regulators are hoping to change that. As Hawaii’s push for renewables enters a new, ambitious phase, regulators say they want to bring relief to customers. The Hawaii Public Utilities Commission is proposing changes as part of a labyrinthine process to overhaul the way HECO and its sister companies on Maui and the Big Island can make money.

The overarching goal, spelled out in hundreds of pages of documents, is to align the company’s incentives with the state’s renewables policy. But part of the goal, which has been adopted by PUC in principle at least, is to create “meaningful, verifiable ‘day-one’ savings for utility customers.”

Large scale solar farms, such as this one on Kauai, can produce electricity for increasingly lower costs. REC Solar/ Drew Bradley

When will consumers start to see the benefits?

“It’s very much top of mind: how our decisions affect the cost of living here,” Jay Griffin, the commission’s chairman, said in an interview. “We want to make sure there are real, tangible financial benefits from the beginning.”

It would be a much-welcomed change for Hawaii ratepayers. With electricity costs at about 33 cents per kilowatt hour in June, Hawaii residents pay the nation’s highest rate, according to the U.S. Energy Information Administration.

It’s nearly three times the national average of 13 cents, and it seems unlikely to change soon. If anything costs could go up, as Hawaiian Electric Co. has asked regulators for permission to increase rates on Oahu.

The PUC’s proposed changes to lower costs are part of an ambitious effort the regulators are overseeing to adopt something called “performance-based regulation.” PBR, as it’s called, rewards utilities for reaching milestones – like adopting renewables or lowering costs for consumers.

Part of the plan involves a multi-year rate-setting scheme in which the utility gets rate increases based on a formula, rather than going to the PUC to request them. The PUC staff’s proposed formula includes factors such as inflation and increased productivity as well as a dividend for consumers.

It’s a big departure from the current model, which generally lets utilities make money by investing in infrastructure and getting paid back over time by charging customers, plus a little extra for profit.

The current model works for traditional, vertically integrated utilities that sell electricity from power plants that they mostly build, advocates for change say. But it’s not designed for a new paradigm where utilities buy power from numerous third parties, including, in Hawaii, thousands of rooftop solar systems that can feed excess power back onto the grid.

Hawaiian Electric building Richards Street downtown Honolulu HEI HECO. 28 jan 2015. photograph Cory Lum/Civil Beat
While a mandate requiring Hawaiian Electric to shift to renewable energy has gotten much of the attention, a company spokesman says the new regulatory framework is “where the rubber is really going to hit the road.” Cory Lum/Civil Beat/2015

The shift to such distributed energy resources has become so much a part of the new energy economy that 19 states and the District of Columbia are exploring or adopting such reforms, the trade publication Utility Dive reported in July.

In Hawaii, state law requires the utilities to face penalties if they don’t meet deadlines for adopting renewables, but there’s no positive incentive, said Murray Clay, president of the Ulupono Initiative.

Clay likened the situation to having a landscaper who gets paid for trimming hedges but not cutting grass. Naturally, the grass could get overgrown since there’s not much incentive to cut it.

“But it’s not the landscaper’s fault,” he said. “It’s your fault for paying for only trimming the hedge.”

Meanwhile, the idea of the utility building its own power plants is at odds with the state’s policy goal of having third parties build facilities to supply the power.

“We’re paying the utility for doing something we no longer want them to do,” said Clay.

Murray Clay, president of Ulupono Initiative, said Hawaii needs to align its regulations with its renewable energy goals. 

Others agreed.

“The utility business model is fundamentally at odds with the policy we have in the state to get us to 100 percent renewable energy by 2045,” said Will Giese, executive director of the Hawaii Solar Energy Association, one of several entities that have joined Ulupono to shape Hawaii’s performance-based regulation scheme.

Others participating in the proceeding include the City and County of Honolulu, Life of the Land, the Blue Planet Foundation and Earthjustice.

Jim Kelly, Hawaiian Electric’s vice president for corporate relations, said it’s important to note that the cost savings for consumers are just a piece of an astoundingly complex proposal that’s being crafted with input from a number of industry experts. The PUC’s initial staff proposal was more than 100 pages long including exhibits. And Hawaiian Electric’s latest proposal is more than 180 pages long.

While Kelly said it would be wrong to single out cost savings for consumers, which is just one element of the PBR proposal, he said PBR’s importance can’t be overstated.

“This part of the process is where the rubber is really going to hit the road in terms of what it will mean for customers and what it will mean for the company,” he said.

Hawaiian Electric Wants A Rate Increase

Consumers theoretically could start seeing relief as early as December 2020. That’s when the PUC plans to issue a decision on the plan. In the meantime, the various interested parties will hold a series of meetings and workshops to hash out the details.

But if Hawaiian Electric has its way, any “verifiable ‘day-one’ savings” Oahu customers get would be offset at least partially by rate increases the utility wants first. In August, HECO proposed a 4.1% rate increase to generate an additional $77.5 million in revenues. The company said a typical residential customer would see a monthly bill increase of about $9.

The requested rate increase is not part of the performance-based regulation proceeding and wasn’t triggered by it, Kelly noted. But it dovetails with the matter.

Although PUC staff have said that a rate increase is not a prerequisite to PBR changes, HECO’s parent, Hawaiian Electric Industries, has disagreed. It wants HECO and its Big Island and Maui sister companies to get rate increases as a starting point for the new formula.

“Without a new base rate case, the starting point for an extended control period would not be reasonable,” the parent company wrote in its PBR proposal to the PUC.

The PUC’s Griffin declined to comment on the current rate case.

While the performance-based regulation scheme is still being hashed out, one thing is clear: prices for renewables are falling. Before 2013, under contracts with solar producers, HECO generally paid more than 20 cents per kilowatt hour. Today, that number has dropped to less than 10 cents, according to contracts between HECO and proposed facilities using solar and batteries to store the electricity that can’t be used right away.

Hawaiian Electric has recent contracts to buy power from some proposed solar farms for rates about half what the company was paying for contracts in 2012. Hawaii Public Utilities Commission

To put that in perspective, power produced from fuel oil at the Kalaeloa Partners plant on Oahu costs HECO about 12 cents per kilowatt hour. AES’s coal-burning plant near Kapolei, which uses coal, is still Oahu’s cheapest source, at 6 cents per kilowatt hour; however, the plant is scheduled to shut down in September 2022.

Kelly said it’s important to note that cheaper solar contracts won’t immediately translate into savings for consumers. More than 60% of rates charged to customers comes from fuel costs, taxes and other state-mandated charges. In addition, he said, it will take years for the new solar projects to come on line.

The good news, he said, is that the long-term solar deals won’t be subject to fluctuations based on changing fuel costs.

“The really good thing is that these are locked in contracts for 20 years,” he said.

Ultimately, he said, it’s a long-term investment.

“This is something we’re setting up for our kids and grandkids, hopefully,” he said.

The Ulupono Initiative was founded by Pierre and Pam Omidyar. Pierre Omidyar is the CEO and publisher of Civil Beat.

“Hawaii’s Changing Economy”  series is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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