Hawaiʻi will tie electric utilities’ revenue to its performance of key functions

On April 24, 2018, Governor David Ige signed SB2939 (SD2) into law as Act 5, which requires the Hawaiʻi Public Utilities Commission (PUC) to create a framework to tie electric utility revenues to performance metrics. Hawaiʻi is the first state to put performance-based ratemaking (PBR) mechanisms into statute. The new law empowers the PUC to set strong, well-informed policies and encourages the utility to ensure clean energy for all of Hawaiʻi’s residents at reduced electrical rates.

“This is the next logical step in Hawaiʻi’s transition to a clean energy future,” said Marti Townsend, director for the Sierra Club of Hawaiʻi. “Performance-based rates bring the financial interests of the investor-owned utility in line with the public’s interest in cheaper, cleaner energy for everyone.”

“Performance-based ratemaking is where the rubber meets the road for bleeding-edge energy policy,” said Will Giese, Hawaii Solar Energy Association Executive Director. “If the 2045 Renewable Portfolio Standard was the vehicle to a clean energy future, then PBR is the engine that will get us there.”

Act 5, also called the Hawaiʻi Ratepayer Protection Act, establishes performance metrics that the PUC will consider while establishing performance incentives and penalty mechanisms. These metrics include:

• Affordability of electric rates and customer electric bills;

• Service reliability;

• Customer engagement and satisfaction, including customer options for managing electricity costs;

• Access to utility system information;

• Rapid integration of renewable energy sources; and

• Timely execution of competitive procurement.

“The bottom line is that SB2939 is a victory for Hawaiʻi’s energy consumers who will see more value for their hard-earned dollars,” said Governor Ige. “Through its expertise and oversight, the PUC will ensure that we move aggressively toward our renewable energy and consumer protection goals while maintaining a safe, reliable and resilient electric grid operated by a financially stable utility.”

Variations on this bill have been heard at the legislature for the past five years, and the PUC recently opened a docket to “investigate the economic and policy issues associated with performance-based regulation.” The preamble to SB2939 specifically references the Hawaiʻi PUC’s “Inclinations on the Future of the Electric Utility” as a guiding document for the language of the bill.

Per the language of SB2939, the Hawaiʻi PUC is required to establish performance incentives and penalty mechanisms by January 1, 2020, that directly tie an electric utility’s “revenues to that utility’s achievement on performance metrics, and break the direct link between allowed revenues and investment levels.”

“By aligning the utility’s incentives with the consumer’s incentives, everyone wins,” said Senator Stanley Chang, who introduced the bill. “Electricity bills will be based on performance: bringing renewable power sources online, upgrading the electric grid, ensuring reliability of the power supply, and even customer satisfaction. That’s good for consumers, good for businesses, good for the environment, good for the state and good for the utilities.”

“This bill aligns the interests of utilities and our communities they serve,” said Representative Chris Lee, chair of the House Committee on Energy and Environmental Protection. “It is a big win for local consumers who will get improved electric services with more options for innovative renewables and batteries, and it is a responsible step forward helping our utilities transition to a sustainable business model that can survive disruption in the energy market.”

SB2939 was passed unanimously by both the Hawaiʻi State House and Senate. A diverse group of stakeholders supported the bill, including the Sierra Club of Hawaiʻi, Blue Planet Foundation, the Alliance for Solar Choice, Organizing for Action, 350 Hawaiʻi, Young Progressives Demanding Action and numerous individuals. The bill goes into effect on July 1, 2018.

“The legislature has worked hard to establish regulatory policy that will better align electric utility incentives with customer needs and the state’s energy policy,” said Representative Della Au Belatti. “Through this collaborative, deliberative, and balanced process, the state will achieve the necessary update to our regulatory framework that ensures a safe, reliable, and resilient electric grid for all of our residents from our rural, agricultural communities to our most densely, populated urban areas.”

“If you were wondering how we get more renewables, cheaper electric bills and better utility grid reliability—this is it,” said Giese. “This is a landmark piece of energy policy and it is totally in-line with the governor’s vision of a clean, sustainable Hawaiʻi.”

“We are extremely grateful to Governor Ige for following through on his vision for a clean energy future for Hawaiʻi,” said Townsend. “After reviewing all of the evidence, Governor Ige made the right choice for Hawaiʻi’s ratepayers and environment.”