In utility regulation, as in life, sometimes you just have to settle and move on.

Last week, Hawaii utility regulators accepted the third version of their utility’s long-term plan to reach 100% renewable energy. But the PUC stopped short of outright approval, warning that Hawaiian Electric’s (HECO) roadmap fails to fully justify its proposed expenditures.

The commission ruling applauded the utility’s short-term ambition to acquire renewables in its Power Supply Improvement Plan (PSIP). But it repeatedly warned HECO that the plan requires improvements and further analysis of proposed investments.

Many planned near-term power acquisitions “are supported by sound analysis and are consistent with state energy policy,” the Hawaii Public Utilities Commission (PUC) reported in the final ruling in docket 2014-0183. But some are "not sufficiently justified.”

“The commission continues to be concerned with the affordability of the Companies' plans,” the ruling added.

Why would the PUC accept what it sees as a questionable plan? The answer lies in the coming phase-out of federal tax incentives for renewable energy. To procure renewables most cost-effectively, HECO “must move quickly to enable customers to benefit from available tax credits,” regulators wrote. Both the federal investment tax credit, which supports solar development, and the federal production tax credit, which supports wind, expire in the early 2020s.

Colton Ching, a HECO senior vice president, applauded the ruling because it “enables us to move quickly on to the next series of action steps and take advantage of the tax credits.”

There is a “definite difference between ‘accept’ and ‘approve’ but we never expected approval in this docket,” he said. “The PSIP is the guiding map for the discrete projects or procurements we will now begin requesting approval for.”  

Earthjustice Attorney Isaac Moriwake, who represented Sierra Club in the PSIP docket, agreed the plan’s “big positive” is that it allows HECO to go “full speed ahead on renewables in the near term while the renewables tax credits are available.”

But the ruling also represents regulatory resignation to a lengthy power planning process that dates back to 2014, Moriwake said. After a rejected integrated resource plan and two rejected PSIPs, the PUC is "just letting HECO move on" and “the ruling essentially says ‘go forward on renewable energy but the roadmap and the destination will be determined later.’”

This concerns former PUC Chair Mina Morita. “I am happy to see that efforts will now move from planning to execution of near term actions,” she said. But “decisions and investments” must be “based in sound analysis.”

HECO’s Ching insists sound analysis will be forthcoming, as does Dean Nishina, executive director of the Hawaii Division of Consumer Advocacy.

“Intensive analysis and justification for future projects and procurements will be required at the time of the filings seeking approval for them,” Nishina said.

Moriwake did not dispute this. But, he said, the need for more analysis for each procurement could mean that building Hawaii’s clean energy future could be significantly slower and more difficult than even the marathon PSIP process.

An order years in the making

HECO’s first PSIP was filed in 2014 and rejected by regulators the next year. In their order and a major white paper aimed at guiding the utility’s planning, the PUC told HECO to “implement the vision for the ‘electric utility of the future,’” including a “a customer focused business strategy.”

HECO’s 2015 revised plan was withdrawn in July 2016 after the PUC rejected the utility’s plan to be acquired by NextEra Energy.

The PUC’s acceptance of this third PSIP allows the utility to begin work on its ambitious five-year action plan, Ching said.

Renewable energy procurements at an unprecedented pace would take the state to 48% renewables by 2020, according to the plan. By 2021, Hawaii would have 326 MW of distributed photovoltaic solar generation, 360 MW of utility-scale PV, 157 MW of utility-scale wind energy, 114.7 MW of demand response, and 31 MW of feed-in tariff-funded renewables.

“Collectively,” the ruling noted, “this represents the largest new generation procurement ever undertaken in the state.”

At the pace projected in the plan, the state would get to 72% renewables by 2030 and reach its 100% renewables goal by 2040, five years early before it is mandated by the renewable portfolio standard.

The plan also would drive substantial investment in energy storage and advanced grid technologies “to maintain reliability,” HECO reported. To more than double the 79,000 distributed solar arrays now on its system to 165,000 by 2030, the utility will “expand and upgrade grid infrastructure” and incorporate “the newest generations of inverters, control systems and energy storage.”

'Nobody's happy'

The commission and many stakeholders remain concerned with the revenue requirement. It could cost Oahu utility customers an estimated $26.5 billion by 2045 and costs to Maui and Hawaii Island customers add $10 billion more.

Regulators directed the utility to begin addressing those costs immediately.

The ruling specifies the need for “thorough analysis of capital expenditures" on several proposed investments. They include “proposed conventional generation plants, utility-owned battery energy storage systems, proposed synchronous condensers, and certain proposed transmission projects.”

Despite the costs, Consumer Advocate Nishina considers the ruling a step forward. It offers a framework in which to “evaluate whether each proposed project is reasonable as compared to other alternatives,”

Acceptance rather than approval is “an important nuance” that signals “there are aspects of the plan and process that need to be improved,” Nishina said. But the ruling is explicit that “there are no identified ‘fatal flaws’ with the plan.”

Jeff Mikulina, executive director of the Blue Planet Foundation, an environmental group, was more blunt.

“Nobody’s happy. The commission decided to accept this plan, focus on the near term because of the tax credits, and move on,” he said. “Everyone has questions about the long term.”

The utility focused on capital expenditures, but its long-term modeling “fell short,” Mikulina said. “Beginning with the first RFPs, this will be all about procurements. HECO will need an improved process to avoid the struggles we’ve had in recent years over utility-scale [renewables versus distributed energy resources].”

HECO’s Ching said the utilities are “already putting together RFPs” and have asked the commission to open a docket for them. The ruling states that “the commission intends to open a series of new dockets to serve as repositories for filings related to the planned upcoming procurements.”

For each project, HECO will provide specific economic and technical analysis and, as required in the order, it will be “the appropriate analysis for approval of an individual application.”

The commission’s acceptance “should not be construed as regulatory pre-approval for any specific element,” the ruling notes. “In subsequent applications for approval or cost-recovery, the utility will bear the burden of supporting the merits of each proposed resource or action.”

The ruling states clearly that the “utilities’ filings will be evaluated on their own merit,” Ching said. “This shows the commission never saw the PSIP as something they’d approve.”

Mikulina sees it slightly differently. “They are saying ‘we are going to scrutinize every contract and project you propose going forward and if your prices go up and the customer exit option gets better, you bear that risk.’”

Only the beginning

Stakeholders see two significant impacts of the ruling. The first is that it raises the stakes for every docket concerning the utility.

Mikulina sees upcoming dockets as “where the real rubber hits the road.” Debates could heat up “about near-term renewables and DER procurements, about the trade-offs between transmission and energy storage, and about non-wires alternatives to utility infrastructure,” he said.

On the other hand, it could lead to more interesting procurements, he added. “We could see a wind project with pumped hydro or a utility-scale solar project with smart technologies and batteries.”

Moriwake said the ruling “defers to a piecemeal, project-by-project, and docket-by-docket analysis that is sub-optimal.” Making decisions “as we go doesn’t mean we don’t get to the goal of 100% renewables but it could mean more work and more costs.”

The PUC has already acknowledged it will use ongoing dockets to address stakeholder concerns about “the failure of the PSIP to maximize the benefits of customer-side resources, including DERs, energy efficiency, demand response, and electric vehicles,” he said.

Ching said the ruling will lessen tension between stakeholders.

“The tension and infighting is because of very ambitious goals without accompanying policy guiding implementation,” he said. “This broad plan will help us work together because now we know what direction we are going. It would be even better if the state had established policies about the specific resource mix, but now we have the 100% target and the near-term procurements for guidance.”

Appendix Q

The ruling also raised the big question of customer exit in the PSIP’s mysterious Appendix Q.

Titled Customer Exit Economic Analysis, the appendix contains “confidential and/or proprietary information” that was made available “only to the commission and the consumer advocate.”

“The companies state that Appendix Q contains ‘preliminary analysis of ... the comparative economics of a customer remaining connected to the utility grid versus disconnecting from the grid,’” the ruling reported. But “the information and analysis presented in Appendix Q is minimal and incomplete.”

There are two kinds of customer exit. Load defection is when customers use of their own distributed generation (DG) to supply some of their power. When they do, the utility is forced to impose system costs on other customers.

As DER become more affordable, customers may choose grid defection, which is leaving the utility entirely.

Appendix Q apparently addresses “the $36.5 billion question,” Moriwake said. “Will escalating spending drive customer exit?”

HECO’s Ching said the utilities continue to look at the economics of customer exit internally and share the data with the PUC and consumer advocate. “It is not in the best interest of our customers to make it publicly available and provide a handbook for how to take our customers away and accelerate grid defection,” he said.

Ching acknowledged the criticism in the ruling about the Appendix Q data but noted that the commission also closed the docket. “They’re chastising us but they understand that making that information public may not be in the public interest.”

Moriwake sees the utility’s refusal to divulge customer exit data as symptomatic of his biggest concern with the commission’s willingness to accept the PSIP. It ignores “the first directive” of the ‘Inclinations’ white paper, which was intended to guide the planning process, he said.

“The elephant in the room is the bias of the utility business model,” he said. “A utility-led planning process favors investment in utility-owned assets over customer-side resources.”

Without a fundamental reform of utility incentives, “we will continue to get insufficient and skewed results in the planning process and not see the entire holistic range of options,” Moriwake said. “The over-50% increase in the utility revenue requirement through 2021 is not the customer-focused, strategic investment described in Inclinations.”

The ruling puts the companies “on notice” that they must offer alternatives in the future, but that is “a minimum condition for accepting the plan,” Moriwake added.

Nishina, whose agency has access to the Appendix Q information, said tension will continue over the issue. Customer exit is “a definite possibility” that could “adversely affect the remaining customer base as well as the utility companies,” he said. It is “yet another signal” the utilities should do everything they can to “aggressively reduce their overall cost of service.”

New plans, new models

HECO’s Ching said tensions could be eased if state policy was more specific about the resource mix to reach the 100% renewables mandate.

“The state has the responsibility for setting energy policy, so the planning process might be led by the State Energy Office or another office or department within the state,” he said. “But it would be helpful to all stakeholders to have policies established not just for where we want to end up but for how we get there.”

Moriwake also believes conflicts of interest inherent in utility-led planning can be resolved by planning led by the State Energy Office, the Hawaii Natural Energy Institute, the not-yet-in service Hawaii Electricity Reliability Administrator, or the PUC.

“The new model might be cooperatives, municipal utilities, or the HECO utilities under realigned incentives,” he said. A legislatively-funded study now underway could provide the catalyst.

Mikulina, however, remained skeptical that any long-term planning process could beget the most cost-effective renewable energy transition.

“No one’s crystal ball is good enough,” he said. “The fix is a dynamic, living planning process, a work very much in progress.”