Dive Brief:

• The Hawaii Public Utilities Commission last week took a major step towards overhauling the states highest-in-the-nation electricity rates, by adopting a portfolio of performance-based regulation (PBR) tools for the state's investor-owned utilities.
• Regulators say that under the new framework, updated revenue adjustment mechanisms will establish targets for Hawaiian Electric (HECO) utilities, which will be applied over a five-year multi-year rate plan (MRP). During that time, there will be no general rate cases.
• The second phase of developing PBR-based rates will kick off in June, when a set of Performance Incentive Mechanisms will be designed.

Dive Insight:

Hawaii lawmakers launched the process of developing performance-based rates in 2017, looking to address the state's electricity costs while pushing to meet a 100% renewable energy goal by 2045. The PUC's May 23 order completed the initial phase, and sets the commission up for more detailed work beginning next month.

PUC Commissioner Leo Asuncion Jr. called the decision "a down payment on a clean-energy future for Hawaii."

Customers can expect a host of benefits resulting from "this new framework to align HECO financial incentives with the state's clean energy goals," he said in a statement, including lower electricity bills, a more resilient grid, and better access to clean, local energy.

While helping to reduce customer rates, the new structure will also allow HECO the opportunity to earn additional revenues if it achieves performance targets related to customer service and satisfaction and the accelerated adoption of clean energy technologies.

HECO's target revenues will be adjusted annually according to an annual revenue adjustment, which will include accounting for inflation, utility productivity and customer benefits.

"The extension from a three-year rate case cycle to a five-year MRP should encourage utility cost savings, and reduce the administrative burden of frequent rate cases," the PUC said in a summary of its decision. And setting revenue targets without distinguishing between capital and operating expenditures "will level the playing field between these different types of expenses and promote selection of least-cost solutions."

During the MRP, a major projects interim recovery adjustment mechanism will continue, "providing the potential for interim recovery for exceptional investments," the PUC said.

Regulators plan to issue another order in June, setting the procedural schedule for Phase 2 of the rate overhaul. The next phase will include development of the specific details of new Regulatory Adjustment Mechanisms and Performance Mechanisms. The PUC provided a table summarizing the work to be done.