Dive Brief:

• Changing the ownership model of Hawaii's utilities is unlikely to help reduce prices and could send electric bills higher, the Hawaii State Energy Office concluded in a study analyzing alternative approaches for utility ownership and regulation.
• The study, released Tuesday, was produced at the behest of lawmakers, and included a review of several models, including cooperative, municipal and independent distribution system operators. The state's electricity prices are the highest in the nation.
• The study, completed by London Economics, concluded lighter regulation could help reduce rates and increase utility flexibility, but the firm said "there is still a need for a safety net for consumers."

Dive Insight:

Hawaii launched its review of utility ownership and regulation models in the wake of NextEra Energy's failed takeover of the state's investor-owned utility. The London Economics report concludes that may have been the best outcome.

The state is pushing Hawaiian Electric Co. toward 100% renewable energy and a more distributed grid, and has been considering a range of potential ways to reduce costs, including recently adopting a portfolio of performance-based regulation (PBR) tools. When the NextEra bid failed in 2016, there were fears the new owners would not fully embrace the utility's goals.

In a presentation on its report, London Economics said the current ownership and regulatory framework in Hawaii "has ensured reliable service, but regulatory adjustments can ensure it is adapted to the evolving technological and policy landscape." At the same time, "a change in ownership model would likely increase electricity rates."

The current ownership and regulatory framework has ensured reliable service, but regulatory adjustments can ensure it is adapted to the evolving technological and policy landscape

The report considered eight ownership models, including transforming HECO into a cooperatively owned utility, or privatizing Kauai Island Utility Cooperative.

"A change in ownership model, either to the co-op model or the IOU model in the case of KIUC, would likely raise the average electricity rates relative to status quo in all the counties, except in Maui County," the report found. "A key takeaway is that transitioning ownership models has a cost, regardless of the model."

Much of that stems from the cost for the new owner to acquire the assets from the incumbent utility, the report said.

For Maui County, a move to the cooperative model could decrease electricity rates by an average of 2% per year, the report found. Other counties would see increases of 5% to 8%.

The analysis concluded regulatory changes "are likely to have a more significant impact when it comes to reducing electricity rates."

The strong incentives of PBR-based rates are projected to push rates down by an average of 0.5% to 9% per year as a result of regulatory changes, depending on the county.

"This is primarily driven by strong incentives, such as those typically provided in PBR," the report said. "In addition, it was observed that the benefits of the move to any of the PBR options generally outweigh the costs."