Recently, HEI reported that its three utilities — HECO (Hawaiian Electric), HELCO (Hawaii Electric Light Co.) and MECO (Maui Electric) — brought in 15.7% less revenue in last quarter compared to the same period last year.

Part of that drop was due to the lower cost of fuel, going down from an average of about $88 per barrel in 2019, to $62 this year in Quarter 2.

More striking was the drop in kilowatt-hour (kWh) sales, a COVID-19 consequence that shows little sign of improving over the months to come and beyond.

According to a recent report from the economics-consultancy firm Brattle Group, the average hit in kWh sales across seven representative mainland regions for June was 3.2% compared to the average of the previous four years.

For Hawaiian Electric, the drop in kWh sales in June was 6.3%, 12.4% and a whopping 25.8% for HECO, HELCO and MECO, respectively. For Quarter 2, HECO experienced a reduction of 9.2% in kWh sales, HELCO 11.7% and MECO 24.5%.

What should Hawaiian Electric do to adapt to this new reality of significantly less sales and lower revenue for an indeterminate length of time? And who will ultimately pay for the increased bad debt expense resulting from the suspension of disconnections as ordered by the Hawaii Public Utilities Commission (PUC) along the increased operating expenses from COVID-19 measures?

In a recent ruling, the PUC allowed HECO and its subsidiaries to capitalize COVID-19 costs. But to actually recover those costs, along with bad debt expense, there will need to be a separate docket where the biggest question will be: Whose risk is that? Just capitalizing the expenses does not ensure recovery of them in rates, a position made clear by the commission in its approval order.

Decoupling electric utility profitability from kWh sales, starting in 2010, was designed to provide Hawaiian Electric a reasonable rate of return, even as its power sales declined due to energy efficiencies achieved and distributed generation deployed (i.e., solar photovoltaic).

The question now is: Was decoupling meant to recover in higher rates at a future time the significantly lower power consumption from a natural disaster? Or should that justifiably be a shareholder risk?

HECO asserts that decoupling covers it for lost sales. But when it comes time to increasing rates to recover that booked revenue from lost sales, should the PUC agree? What should the posture of policymakers and the commission be, regarding the recovery of COVID-19 costs from ratepayers instead of writing them off as an HEI shareholder cost?

The companies are at the forefront of COVID-19-related issues for electric utilities because sales are down so much more than mainland utilities. The unique nature of Hawaii PUC orders, decoupling and the impending imposition of performance-based regulation will be a dramatic test of regulatory theory in practice.

We are definitely into unchartered waters here compared to anywhere else in the U.S. when it comes to dramatically different power consumption patterns and economic dislocation. Whomever we have navigating the way forward when it comes to energy and the reconceptualization of the state’s economy cannot be stuck in past modes of thinking or typical platitudes.

Marco Mangelsdorf is president of ProVision Solar, a renewable energy firm, and a director of Hawaii Island Energy Cooperative.