Dive Brief:

• A state-ordered audit of Hawaiian Electric Co.'s management and practices is in the works and has been "productive" thus far, utility officials said in advance of a public hearing next week on a proposed $77.5 million base rate increase for customers on Oahu.
• The Hawaii Public Utilities Commission called for the audit in September, when it launched a review of the rate hike, but did not specify any catalyst. Regulators tapped consulting company Munro Tulloch to run an inquiry into HECO's governance and leadership, planning strategy and management of programs and projects.
• The PUC has scheduled a Nov. 14 hearing on the new rates, which HECO says would go to pay for grid upgrades and technology to integrate more renewable energy. A typical residential customer on Oahu would see their monthly bill increase about $8.67 per month under the proposal.

Dive Insight:

There was no indication in the PUC's September order that regulators have specific concerns about HECO, instead specifying the commission sought to "promote transparency and understanding."

"Similar audits are common in other jurisdictions," the commission wrote. "Such in-depth investigation is desirable to promote transparency and understanding of HECO's management practices and its related expenses, which are included as part of its proposed general rate increase.”

Massachusetts in September launched an investigation into the management of National Grid, though in that instance regulators did point to specific concerns including the utility's cybersecurity plan and management of its solar interconnection process. Maine regulators previously scrutinized EmeraMaine; before that, Illinois regulators took a hard look at Peoples Gas Light and Coke.

According to the Hawaii PUC, Munro Tulloch principal Ray Tulloch will conduct the audit in multiple phases, including: an initial review, interview, and development of initial findings; focused analysis in specified areas; cost-benefit analyses and analysis of rate case impacts; and development of recommendations.

“Additionally, the management audit may present opportunities for HECO to realize operational efficiencies, better manage costs, and improve its financial condition," regulators said in the September order.

The utility confirmed the audit has begun and it is working with Tulloch.

"We’ve already started conversations with the consultant who is conducting the audit ... and we think the discussions have been productive," HECO officials said in a statement to Utility Dive. "Every rate review proceeding is essentially an audit of our operations, so we look at this management audit as an additional tool being used by our regulators," officials noted.

HECO added that the audits are done in other jurisdictions, and the utility believes regulators are "using this process to get an extra layer of visibility into how we run our business day-to-day."

The public hearing next week will focus on public comment on the rate hike. An evidentiary hearing with the parties will be scheduled later, regulators said.

HECO wants to increase its Oahu base rates by $77.55 million, or approximately 4.12% over revenues at current effective rates based on a revenue requirement of $1.96 billion.

In its earnings statement issued Nov. 1, HECO said it expects the audit to conclude in May 2020. Changes to rates are not expected to take effect until mid-2020, the utility said.