Editorial: New power policy equals lower rates

Rooted in heavy dependence on imported fossil fuel, Hawaii’s push for more clean-energy production is tethered to some ambitious mandates. Among them is a state law that requires 100% of electricity sales to come from renewable resources by 2045.

Our chances of fully achieving this first-in-the-nation mandate are potentially much-improved by a landmark Hawaii Public Utilities Commission (PUC) decision and order last week that changes how a dominant utility, Hawaiian Electric, makes money.

In short, it’s “in” with a new performance-based regulation framework designed to “accelerate the drive towards more efficient (utility) operations, lower electricity rates, improved services … and achievement of the state’s clean energy goals.” And it’s “out” with what remains of traditional, cost-of-service regulation, through which rates are determined by increasing utility system costs rather than improvement in performance.

The old-school model offers little incentive to push for using less imported oil. And clearly, a steady hard push is needed, given Hawaii’s status as the only state still primarily reliant on oil-fired electrical generation. Overall, about 11% of our energy comes from renewable sources.

Among studies that help drive home the polluting perspective: one that found in 2016 Hawaii imported more than 6 million tons of petroleum, petro products and coal, adding up to 57% of the total tons of cargo imported through our ports.

Hawaii’s move away from the cost-of-service model started about a decade ago with decoupling, a breaking of the link between electric utility profitability and kilowatt hour sales. Through this method of setting rates, when sales decline due to energy efficiency measures or customer installations of solar and other types of renewable energy, the utility’s revenues are protected.

While decoupling has prompted some progress, the PUC persuasively concluded in its order that a more forceful shake-up is needed to ensure that clean energy transformation is “borne fairly between shareholders, who benefit from utility earnings, and customers, who currently experience persistently high electricity rates.”

Due in large part to the rising cost of fossil fuel, the kilowatt price in Hawaii is by far the highest in the nation. The performance-based model rightly takes steps to ease the rate burden shouldered by Hawaiian Electric’s customers.

Among the features in the new regulation: an index tying utility revenue increases to general inflation, which will limit utility system costs and provide an incentive to maximize profit by capturing savings and efficiency. Also, a “consumer dividend” is expected to give ratepayers savings, a welcome relief in these particularly tough times.

Other incentive-focused features encourage Hawaiian Electric to reduce delays in rooftop solar setups, and promote energy efficiency for low-income customers. Further, the utility will reap additional revenues for aggressively accelerating adoption of renewable energy ahead of legally mandated targets.

Hawaiian Electric has succeeded in meeting a state-imposed 2020 deadline for generating 30% of electricity sales (now reaching 35%) from renewable resources. That’s progress, considering that about a decade ago it was less than 10%. But there remains a daunting path ahead to reach the 100% mark as the utility has little or no control over some key matters, such as land-use policies.

It’s fitting that the state’s bold mandate for 2045 should be ushered in with bold reset of regulation — now emerging as a possible way forward in dozens of states. Supporters of performance-based regulation say utilities and regulatory commissions across the country will watch closely as Hawaii leads the way.

Indeed, with adequate safeguards in place, including annual reviews to ensure that unforeseen snags and loopholes can be quickly addressed, this new model could be a win-win-win — for customers, the utility and a healthier environment.