In landmark news, a new law
directs Hawaiian utilities to change their business model and reward attributes
such as customer satisfaction and ease of renewable interconnection.
April 26, 2018
Chief Editor
In what could be the beginning
of the new way forward to utilities, on Tuesday, Hawaiian Gov. David Ige signed
the Ratepayer Protection Act, a new law that directs utilities in Hawaii to
change their business models and fully decouple revenue and capital
expenditures.
“This is the first
jurisdiction that is doing this. It's a concept that's been discussed at some
length among scholars and experts in the field but no one has actually
implemented this so this was definitely a moonshot bill,” said State Sen.
Stanley Chang in an interview.
“Instead of charging what the
market can bear or letting utilities charge on a cost-plus basis to recoup
their costs, for the first time they are going to charge based on factors
including affordability, reliability, transparency, renewable energy integration,
efficiency,” he added.
“That's a total change to the
business model of these utilities.”
How it Works Now
Today, one of the only ways
that utilities all across the world can generate revenue is by rate-basing
capital expenditures. What that means in plain English is that the more
utilities spend on infrastructure, such as upgrading transmission and distribution
equipment (and building new generation plants in some territories), the more
money they make because they are allowed to add those capital expenditures to
their electric rates plus a healthy margin and recover their costs through
ratepayer dollars.
As of July 1, 2020, this model
will cease to exist in Hawaii.
Under the new law Hawaiian
utilities and the public utility commission (PUC) will need to come up with “performance
incentives and penalty mechanisms that directly tie an electric utility
revenues to that utility's achievement on performance metrics and break the
direct link between allowed revenues and investment levels,” according to
the new law.
The law was driven partly out
of necessity. As costs for solar and
storage increase, and utilities lower their net-metering compensation rates,
increase fees and wait times for renewable energy interconnections and
otherwise make using the grid more onerous for homes and businesses that
install solar and energy storage, it simply becomes easier and ultimately could
become more cost-effective for homeowners that want to go solar and use storage
to cut the cord and go off-grid.
“Just going off the grid
entirely is not the easiest thing in the world but it is true that, especially
with advances in battery technology the reduction in costs of batteries and
solar, that that is not just a theoretical threat at this point,” said Chang.
And once there is mass grid
defection, the entire utility ecosystem is turned on its head.
Because a third of all
residences in Hawaii have solar and the state seeks to get 100 percent of its
energy from renewable sources by 2045, the need for a completely new way of for
utilities to exist was born.
How It Will Work in the Future
The new bill establishes
performance metrics that the PUC will consider while establishing performance
incentives and penalty mechanisms. They include: affordability of electric
rates and customer electric bills; service reliability; customer engagement and
satisfaction, including customer options for managing electricity costs; access
to utility system information; rapid integration of renewable energy sources;
timely execution of competitive procurement.
Chang acknowledges that it’s
not going to be easy for the three public utility commissioners to figure this
out. He said they opened a docket last week to begin to study the issue.
“These are really tough
questions that they are going to have to answer without the benefit of
precedent from basically anywhere else,” he said.
“This is uncharted territory.”
Hawaii Paving the Way for All
Others
If Hawaii can figure out a way
to transform its utilities into customer-serving entities that are rewarded for
performance, it could have a global impact.
“At the end of the day the
utility of the future has to be one that is performing all of these different
metrics. That is the one that is going to survive,” he said. “Otherwise the
death spiral thing is a real thing.”
Chang said that he is
receiving positive feedback from colleagues all over the world, including China
where even though all utilities are state-owned “it’s still hard for them to
adopt performance-based rate-making or other innovations like we have,” he
explained.
“I think this is the wave of the
future, and I think we will see a lot more of this around this country and
around the world,” he said.
Utilities have until July 1,
2020, to develop new rates.
For Further Reading:
Jennifer Runyon is Chief
Editor of Renewable Energy World, coordinating, writing and/or editing columns,
features, news stories, blogs and videos for the digital magazine and website.
She also serves as Renewable Energy conference chair of Power Gen
International, the largest conference and expo for the traditional power
generation industry. She is also Chair of the Women in Power Committee. Formerly,
she was the managing editor of Innovate F...
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