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Hawaii Issues Framework Order

The Hawaii Public Utilities Commission has issued a ruling giving the state’s major electric operating utilities providing retail electric power service as part of
Hawaiian Electric Co. Inc (HECO) system a portfolio of performance-based regulation (PBR) tools intended to replace traditional cost of service regulation with a new framework. It said that while the traditional regulatory structure encourages utilities to make large investments in new power plants and the electric grid in order to earn a profit, the performance-based framework will allow the utilities to earn profits for exemplary business performance and should result in immediate customer  benefits, including reducing what are now the highest electricity rates in the United States.


The commission emphasized that Hawaii’s electricity sector is undergoing a period of dramatic transformation aimed in large part at achieving a 100% Renewable Portfolio Standard by 2045. It said that that challenges with the current regulatory framework in addressing the ambitious goal will be addressed by the PBR mechanisms prioritized for examination and development in a second phase of the proceeding. According to the commission, once implemented, the PBR plans will deliver immediate savings to customers, while rewarding the HECO Companies for exemplary performance in achieving specific outcomes, including increased renewable energy integration and improved customer service.

Under the framework provided by the commission, the company will have the opportunity to earn additional revenue if it achieves performance targets, including set goals to strengthen its relationship with customers and accelerate the installation of new clean energy technologies, such as the faster connection of rooftop solar and battery storage systems. The commission found that by automatically adjusting utility revenues based on an annual revenue formula and employing “upside” and “downside” earnings sharing mechanism, utilities will have greater certainty and more timely recognition of revenues. It concluded that these provisions will provide a corresponding reduction in risk for the HECO Companies’ bondholders and shareholders, which will reduce the HECO Companies’ cost of capital, benefiting all customers. Re Instituting a Proceeding to Investigate Performance-Based Regulation, Docket No. 2018-0088, Decision & Order No. 36326, May 23, 2019 (Hawaii P.U.C.).


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