ORIGINAL REPORTING: Watching Utility Spending

Audit of Hawaiian Electric sends a postcard about the future of regulation; Hawaiian Electric’s shortcomings show the nation how traditional regulation's weaknesses drive the need for performance-based regulation in the power sector.

Herman K. Trabish, July 13, 2020 (Utility Dive)

Editor’s note: No major new audits announced this year, but let’s face it – this year doesn’t really count.

Hawaii's latest postcard from the power sector's future is the management audit its Public Utility Commission (HPUC) ordered in the Hawaiian Electric 2019 general rate case, which highlighted significant opportunities for a new kind of regulation.

The audit revealed weaknesses in business and operational practices that regulators, utility leaders and stakeholders can address as the state moves toward performance based regulation (PBR), the audit reported. The audit found strengths, but identified weaknesses, especially in the company's Energy Delivery division, where "urgent corrective actions" could "deliver annual benefits for customers" of $46 million by 2023.

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"We're taking ownership of the need shown in the audit for us to become more efficient in a lot of areas," Hawaiian Electric CEO Scott Seu told Utility Dive. "Our very explicit commitment is that we are going to do that as our company transitions to 100% renewables and new regulation."

But the corporate culture revealed in the audit may prevent Hawaiian Electric from meeting that commitment, some stakeholders said. That prospect for failure will require special attention from regulators as Hawaii moves into the biggest U.S. test of PBR, they added.

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It also makes the audit a message to regulators across the country, Rábago Energy Principal and former Texas electric utilities regulator Karl Rábago told Utility Dive. "Audits are not uncommon, but they are more uncommon than they should be, given the transformation in the electric utility sector," Rábago said.

A "management audit will help ensure Hawaiian Electric is operating in a prudent and efficient manner for the benefit of ratepayers" and "identify opportunities for improved performance," the HPUC's September 2019 order initiating the audit reported… click here for more

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