ORIGINAL REPORTING: Hawaii PBR Would Change Entrenched Power System Business Model
Hawaii finalizes utility regulation considered potential template for US power system transformation; Stakeholders agree the final performance-based regulation order from the state's regulators includes opportunities and safeguards that can be lead to a new regulatory paradigm.
Herman K. Trabish, Jan. 19, 2021 (Utility Dive)
Editor’s note: Policymakers across the U.S. have tested changes to the century-old regulatory paradigm but Hawaii may break through.
A Dec. 23 order by Hawaii's utility commission may lead to the most significant change in power system regulation in U.S. history by giving Hawaiian Electric new control over its future, proceeding participants said.
Hawaiian Electric will become the first U.S. investor-owned utility to transition away from cost of service (COS) regulation. Over five years, it will move from earning revenues based on capital expenditures to Performance Based Regulation (PBR) and financial stability, based on limited rate-based revenues and rewards for achieving public policy goals and cutting customer costs.
The commission's order, developed over an almost three-year stakeholder proceeding, aligns "the company's actions, the customers' experience and Hawaii's ambitious clean energy goals," Hawaiian Electric spokesperson Jim Kelly said in a statement. It provides "the right incentives to aggressively move ahead with modernizing our company and Hawaii's energy system."
Hawaii's regulators and stakeholders acknowledged they are asking a lot of their electricity provider. "The utility has faced more regulatory innovation in the last ten years than over the prior century, and this holds its feet to the fire," said Murray Clay, president of the Ulupono Initiative, which led advocacy for a key PBR component. COS regulation "has protected Hawaiian Electric and this asks it to act more like it is in a competitive environment."
To support the utility through this unprecedented transition, the order includes reviews, opportunities to revise, and allowances for limited guaranteed returns. But the commission asserted its intention to make PBR work and "not to return" to traditional regulation.
If successful, this PBR framework could be a template for U.S. power system transformation, said commissioners from the mainland who helped design the framework. The PBR order accomplished three guiding principles set out in the first phase of the proceeding (Docket 2018-0088) to align utility and customer interests and state policy goals, Hawaii Public Utilities Commission Chair James Griffin told Utility Dive. It offers "day 1 customer savings," streamlines the utility's "regulatory burden," and provides safeguards to protect the utility's finances and credit ratings… click here for more