State regulators have given Hawaiian Electric Co. final approval for a 5.7 percent rate hike, most of which the utility had been collecting on an interim basis for more than a year.
The Public Utilities Commission, in its ruling issued Wednesday, also put in place a new method of rate setting, known as "decoupling," designed to encourage the development of renewable energy by eliminating the economic incentive for HECO to sell more electricity.
HECO originally applied for the rate hike in 2008, and the PUC gave HECO approval in July 2009 to collect the bulk of the increase — 4.7 percent — on an interim basis. The PUC followed up with a second interim ruling in February 2010 that allowed HECO to collect an additional 1 percent.
Together the increases added $7.82 a month to the bill of a typical utility customer using 600 megawatts of electricity a month. The PUC made a few minor adjustments after the interim ruling that will result in a one-time refund of about 11 cents for the typical residential customer.
HECO is using the $74 million generated by the rate increases to help pay for various capital improvements, including part of the cost of its new $196 million Campbell Industrial Park generating station that burns renewable biodiesel.
Going forward, HECO is awaiting a ruling from the PUC on a request for a rate hike that it submitted in July. The two-part increase totaling 5.4 percent would boost the average residential bill on Oahu by $7.08 a month. The increase would be the third in the past four years for HECO. Any hike wouldn’t go into effect until mid-2011 at the soonest, the utility said.
Starting in January, HECO residential customers will pay an additional 71 cents per month for an energy efficiency program run by a private company under a contract with the PUC. The increase will boost the total charge to $3.57 a month for the typical ratepayer. The PUC approved the increase on Tuesday.
The PUC used final approval of HECO’s 5.7 percent rate hike to begin implementing features of the new decoupling mechanism.
The scheme essentially guarantees utilities enough revenue to cover their fixed costs if their electricity sales decline. Having to pay fixed costs, such as capital improvements, while revenues are declining can put a strain on a utility’s finances.
Proponents say that by decoupling sales from earnings, a utility is free to pursue alternative energy sources or increased efficiency without worrying about hurting its bottom line.
Critics worry that guaranteeing the utility a set level of revenue takes away the incentive to improve service to customers and keep costs down. It could also result in a situation where consumers who reduce their energy use might not necessarily see their energy bill go down.
Decoupling will have no immediate impact on customers’ bills, HECO said. Any annual adjustment, after review by the state Consumer Advocate and the PUC, is expected to begin no sooner than next summer.