In a landmark order that could set the tone for electricity rates across the country, the state Public Utilities Commission has ordered Hawaiian Electric to transform its existing power rate structure into one that better acknowledges the growing use of renewable energy.

Specifically, the order that was issued Oct. 31 will lead to a new rate structure designed to encourage customers to reduce electricity during peak times when energy costs are high and shift load to the time of day when cheaper renewable resources are plentiful.

The time-of-use rate scheme — planned to be fully implemented in a couple of years — will give customers the opportunity to explore rate options and save money, according to the PUC.

While a number of municipalities across the country use the same type of rate structure in an effort to maximize their energy grids, Hawaii’s PUC is the first state regulatory commission to mandate it across nearly all of the state.

“It sets Hawaii at the head of the class nationally in advanced utility rate design, and it will be a model for other states to follow,” said Earthjustice attorney Isaac Moriwake, who represented the Hawaii Solar Energy Association in the PUC proceedings that led to the order.

Honolulu climate consultant Jeff Mikulina agreed.

“This is critical if we hope to achieve our climate goals at lowest cost,” he said.

Mikulina, the former executive director of the Blue Planet Foundation, said the decision empowers consumers to give them more control over their energy bills and their impact to the climate.

“It does so by using price signals to better match energy use to times of high renewable energy production — times when nature is providing fuel for free,” he said.

The commission issued a second order Oct. 31 to establish a framework for connecting solar panels and battery storage to Hawaiian Electric’s power grid and for compensating customers for the power they generate.

For both orders, rates and details still must be figured out following pilot projects and additional studies.

In any case, the PUC orders should lead to a boon in Hawaii’s rooftop solar industry and help the state achieve its goal of transitioning to 100% renewable energy by 2045.

“Hawaii is leaping ahead with this order,” said Rocky Mould, executive director of the Hawaii Solar Energy Association. “It is a modern rate design for a clean energy future.”

The orders come at a time when energy bills are spiking on Oahu following the September closure of Hawaii’s only coal-burning power plant, leaving Hawaiian Electric to rely more on power produced by more costly oil.

The 183-page “advance rate design” order calls for three time periods that will have distinct prices that reflect how much it costs to produce energy during that period.

Daytime energy prices will be the cheapest (9 a.m. to 5 p.m.), reflecting the low cost of renewable energy produced during the daylight. Overnight prices will be slightly more expensive (9 p.m. to 9 a.m.), and evening peak prices during weekdays will be the highest (5 to 9 p.m.). Weekends and holidays will have prices similar to the weekday overnight.

There also will be an opt-out rate plan for those who find this too complex, but the new default rate — even if you ignore the various rate periods — generally shouldn’t cost any more than current bills, officials said.

Hawaiian Electric has some work to do to make the new rate structure work.

A pilot program will start in the new year, according to the order, followed in July by an evaluation of its impact and effectiveness.

The key is the use of smart meters, those digital devices that measure electricity use in homes and businesses and communicates remotely to the utility.

Hawaiian Electric spokesman Jim Kelly said 30% of its customers — about 150,000 — already have smart meters, and the company is aiming to provide smart meters to the rest of its customers by the end of 2024.

The order also directs the company to launch a campaign to educate customers about the new rate structure.

“This will be a big change for customers and that’s why the education and outreach is so important,” Kelly said.

“We want customers to be ready for it. We want them to be able to take advantage of the opportunities time-based rates provide to manage their electric bills and potentially save money. It’s going to require customers to be more active consumers, and we’ll offer the tools they need to do that effectively,” he said.

Since 2020 the PUC has been working with representatives of Hawaiian Electric and the rooftop solar industry to create the new power rate framework for residential customers and small- and medium-sized commercial customers.

The goal was to come up with rates designed to encourage energy efficiency and demand flexibility, improve grid resilience, promote reliability and reduce environmental impacts.

The commission ended up adopting the basic rate plan proposed by Washington state energy consultant Jim Lazar, who represented the solar industry in the series of workshops that led to Monday’s order.

In an interview, Lazar said opportunities to save money without affecting lifestyle for most customers will come from the water heater, electric car charging and the laundry.

Lazar said, for example, his mother lives in a city, Redondo Beach, Calif., that uses a similar rate structure. He said he put a sticker on her dryer saying to avoid use between 5 and 9 p.m., the time when electricity costs the most. She ended up saving $5 a month.

Lazar said the economics of advance rate design are even more compelling in Hawaii than they are in the rest of the country, because there’s plenty of sunshine and power potential during the day, and Hawaii burns expensive oil to generate electricity at night.

“I’m hoping California (as a state) will follow in Hawaii’s footsteps,” he said. “Smart meters are already in place, and they could switch over tomorrow if they wanted to.”

Lazar said the new structure is a win-win for nearly everyone.

“It’s good for the company. It’s good for consumers. It’s good for the environment,” Lazar said. “It’s not good news for the oil companies.”