ORIGINAL REPORTING: Hawaii initiates performance incentives to give its utility 'skin in the game'

Hawaii's new fuel price performance incentive gives HECO 'skin in the game' - A new sharing mechanism moves some risk of fuel price volatility from customers to the utility.

Herman K. Trabish, Aug. 6, 2018 (Utility Dive)

Editor’s note: Hawaii is breaking ground in changing utility incentives so they align with the interests of its customers.

Hawaii regulators took a step toward performance incentives for its dominant electric utility, but transitioning to true performance-based regulation (PBR) will be contentious, judging from the stakeholder response. The cost of importing expensive fuel oil for power generation in the state has led to many debates over the best way to align utility incentives with customer interests — such as using a sharing mechanism to split fuel price volatility risks between the utility's shareholders and its ratepayers. On June 22, the Hawaii Public Utilities Commission (HPUC) approved a risk sharing mechanism that is a step toward performance-based incentives.

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Many in the state see the move as an indication that more reforms are coming in the state's regulatory docket on PBR, initiated this year. But both HECO, the state’s dominant electricity provider, and Hawaii's consumer advocate question whether the new PBR provision will ultimately serve customer interests. Under Hawaii's Energy Cost Adjustment Charge (ECAC), HECO was able to pass 100% of its fuel costs to customers, giving it no incentive to minimize its use of fuel oil and working against Hawaii's 100% renewables by 2045 mandate. The new risk sharing mechanism follows other state innovations on fuel costs and aligns HECO and customer interests on the high and volatile cost of the imported fuel oil by giving the utility a direct financial incentive — reward or penalty — to stabilize and reduce power supply fuel costs… click here for more

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