On Aug. 26, the Hawaiian Electric Companies (HECO) will release much-awaited plans for its vision of Hawaii’s energy future. HECO is in good company: States everywhere are taking a fresh look at energy and the companies that provide it. With aging generation fleets, new customer options, disruptive energy technologies and pressure to reduce greenhouse gas pollution, utilities understand they must change.

Predicting energy markets is very difficult. In 2008, HECO and the state signed the landmark Hawaii Clean Energy Initiative, planning for 23 megawatts of rooftop solar power on Oahu by 2015. Technology improved, prices dropped and consumers flocked to solar power, so that the island has now met the solar target 10 times over (around 250 megawatts). This illustrates the challenge for utilities: Build a business plan flexible and innovative enough to thrive in a world of ever-improving technology.

Fortunately, the Hawaii Public Utilities Commission has laid the groundwork for exactly that type of business plan. By describing a strong vision for Hawaii’s power systems, and requiring HECO to prepare plans to achieve that vision, the commission has cleared the path to a clean energy future with new business and regulatory arrangements.

Here are four linked elements that will determine whether the new plans unveiled this week will serve Hawaii’s needs:

» Reorient utility compensation to focus on performance. Twentieth-century incentives won’t lead to 21st-century performance. Utilities and their investors must embrace a system that rewards them for providing a better product. This means creating a corporate culture that is intensely focused on company efficiency and finding solutions for cleaner, more affordable, more local power. Regulators must use both sticks and carrots. For a new regime to be credible, regulators must hold utilities accountable.

» View the generation business differently than the power distribution business. The "wires" business of a utility tends to be more predictable and more stable in its revenue requirements. It also presents the greatest options for utilities to create a marketplace of choices for how customers obtain "energy services" — like air conditioning, hot water, lighting, transportation and other everyday conveniences. The generation business is less predictable and more amenable to competitive solutions. For these reasons, the two arms of HECO’s business should be planned and regulated separately.

» Manage risk by diversifying the energy portfolio, with an emphasis on low-carbon resources, energy efficiency and consumer participation in load management. Investors know that investing in different asset classes with different risk profiles reduces risk in their investment portfolios. Similarly, diversifying a utility’s portfolio by including many supply and demand-side resources that behave independently will reduce overall risk. Conversely, focusing too narrowly on higher risk energy resources, like coal, natural gas or nuclear power, may have negative future impacts not reflected in today’s prices.

» Use a robust and transparent planning process. A utility plan that is flexible and proactive will continually seek out and address evolving opportunities and risks. This means a utility must frequently collaborate with regulators, vendors and other stakeholders to evaluate the full spectrum of resource options. Demand-side resources must get equal consideration alongside supply-side resources; both must be evaluated not only on cost, but also on risk.

If the Aug. 26 plans incorporate these four elements, HECO’s business plan and the commission’s regulatory plan will work together to serve Hawaii. Without these progressive elements, the future is much less attractive: a power system with one foot stuck in the last century, burdened by over-reliance on imported fossil fuels and restricted customer options.