Hawaiian Electric Co. and its neighbor island subsidiaries will no longer be able to set electricity rates based solely on utility expenses, under legislation Gov. David Ige signed into law Tuesday.
Instead, rates will be tied in part to consumer-friendly performance benchmarks, such as affordability of electrical bills and increased renewable energy.
Ige called Senate Bill 2939 Opens in a new tab, now known as the Hawaii Ratepayer Protection Act, “a victory for Hawaii’s energy consumers.”
The law requires a shift in rate-setting under the Public Utilities Commission, which oversees and regulates utilities. The Public Utilities Commission by Jan. 1, 2020, needs to “establish performance incentives and penalty mechanisms that directly tie an electric utility’s revenues to that utility’s achievement on performance metrics,” according to the law.
Utility rates historically have been set using a cost-based method to earn return on investment.
Under the new law, rate-making will instead be tied to performance measures that could include affordability of electrical rates; electrical service reliability; “rapid” integration of renewable energy sources; customer engagement and satisfaction; and public access to electrical system planning data and customer energy use data. The shift will “break the direct link between allowed revenues and investment levels,” according to the bill.
The Sierra Club of Hawaii, which supported the bill, said the law sets the course for “the utility of the future” by ensuring that HECO gets paid when its rates are affordable and its energy is renewable.
“This is the next logical step in Hawaii’s transition to a clean energy future,” Marti Townsend, director for the Sierra Club of Hawaii, said in a statement. “Performance-based rates bring the financial interests of the investor-owned utility in line with the public’s interest in cheaper, cleaner energy for everyone.”
The utility says it already has been moving in this direction. HECO said in testimony on the measure that it supports “carefully designed incentive-based regulation.” The utility added that in recent utility rate cases before the PUC, it has recommended Opens in a new tab the commission initiate proceedings to review Opens in a new tab and develop a comprehensive incentive-based regulation framework.
“By aligning the utility’s incentives with the consumer’s incentives, everyone wins,” state Sen. Stanley Chang, who introduced the bill, said in a statement.
House Majority Leader Rep. Della Au Belatti said the Legislature expects the PUC will solicit input from stakeholders to come up with the performance benchmarks.
“Through this collaborative, deliberative and balanced process, the state will achieve the necessary update to our regulatory framework that ensures a safe, reliable and resilient electric grid for all of our residents from our rural, agricultural communities to our most densely populated urban areas,” Belatti said.
The law applies only to Hawaiian Electric Co., Maui Electric Co. and Hawaii Electric Light Co. It does not apply to a member-owned cooperative electrical utility, like the Kauai Island Utility Cooperative.
Correction: Hawaiian Electric Co. and its subsidiaries will still be able to set electricity rates based in part on utility expenses. A previous version of this story said cost-of-service ratemaking would end under Senate Bill 2939, which requires the Public Utilities Commission to establish a performance-based ratemaking framework.
