HONOLULU — Residents in Hawaii are expected to see shrinking utility costs and growing renewable energy after the state changed the way Hawaiian Electric makes money.
The Hawaii Public Utilities Commission issued a 200-page decision last week, establishing a “performance-based regulation” framework that separates the profits from capital investments, or a “cost-of-service” approach, the Honolulu Star-Advertiser reported Monday.
Based on preliminary estimates using current sales, Commission Chairman James Griffin said the decision means typical customers on Oahu could see savings of $17 on their electrical bill next year, which could grow up to $25 by 2025. On Hawaii island those savings would grow from $23 to $33, and for Maui residents they would increase from $22 to $30.
The Hawaii state energy office said the monthly residential electric bill in Hawaii averaged $162 last year.
Ratepayers could save tens of millions of dollars a year under the performance-based regulation framework, and additional savings could occur as more renewable energy projects are expected to come online.
The performance-based regulation provides financial incentives for the utility to achieve customer and policy-oriented performance goals, such as increased savings for lower-income customers and the reduction of greenhouse gases.
Hawaii started moving away from the old cost-of-service business model in 2010 after establishing “decoupling” mechanisms that separate electricity sales from utility profits, the Star-Advertiser reported. Electrical companies previously earned more money if customers used more electricity, so there was no incentive to reduce consumption.
With decoupling, utilities are now more likely to take a neutral stance on efforts to increase energy efficiency or promote the installation of rooftop solar panels, which reduce electricity sales.
It will be difficult to determine how much renewable energy will grow under the new framework, but Griffin said there’s a “strong incentive” for the utility to add more.
No other state relies on petroleum products for energy as much as Hawaii, with only 11% of the state’s energy coming from renewable sources, officials said.
Griffin said the problem was that there were no financial upsides from the programs, but now Hawaiian Electric will have financial opportunities to earn “rewards for exemplary and high-quality service.”
“Hawaiian Electric will have much stronger financial interests to control their costs and achieve clean energy goals,” Griffin said. “We intend for this to be win-win for the public and utility.”
“It’s been a long road, but the Commission’s bold decision puts ‘cost-plus’ regulation in the rear view mirror,” said Ron Binz, former chairman of the Colorado Public Utilities Commission and expert for Blue Planet Foundation. “This decision puts Hawaii in the lead nationally by reforming regulation to achieve a ‘win-win-win’ for customers, the utility, and the environment and climate.”
