Innovative Energy Regulation: Re-basing mechanism can streamline processes while maintaining utility incentives
Sep 30, 2024
Four years after Hawai‘i pioneered a groundbreaking Performance-Based Regulation (PBR) framework for its electric utility, Ulupono Initiative has proposed further refinements to help keep the state on track for its ambitious renewable energy goals.
In its latest presentation to the Hawai‘i Public Utilities Commission (PUC) on Aug. 30, Ulupono argued the merits of a new approach to the standard mechanism of regulatory oversight, the cost-of-service rate case, which has been in place for decades. Instead, Ulupono’s proposal focuses on a re-basing mechanism designed to streamline processes, increase objectivity, and maintain a strong tie between utility performance, and incentives.
The proposed PBR re-basing mechanism, based on a method used in Alberta and Massachusetts, aims to make it easier to adjust utility revenue at the start of each new Multi-year Rate Plan (MRP). It would rely on past data to set a basic rate, avoiding the need for complicated and often inaccurate predictions about future spending.
“Our goal is to continue the success of the PBR framework without reverting to lengthy, costly rate cases,” said Michael Colón, director, energy sector, for Ulupono Initiative. “The proposal comes at a crucial time, as Hawai‘i continues to lead the nation in renewable energy adoption. The state's commitment to achieving 100% renewable electricity by 2045, coupled with recent challenges such as the Maui wildfires, underscores the need for an agile, efficient regulatory framework.”
Key benefits of the proposed mechanism include easing the regulatory and administrative burden, retaining incentives for cost control, and limiting the tendency to push capital expenditures into the future year in which expenses and investments are estimated to justify new rates. The approach also maintains special treatment for policy-driven capital expenditures, ensuring continued support for critical infrastructure projects.
The PUC, which has been at the forefront of innovative energy regulation, continues to consider this topic as part of its ongoing review of the PBR framework. The commission’s decision in 2020 to adopt PBR was hailed as a transformative step towards more efficient utility operations, lower electricity rates, and accelerated achievement of the state's clean energy goals.
As stakeholders await the PUC’s response to these latest recommendations, the conversation around Hawai‘i’s energy future continues to evolve. The proposed refinements to the PBR framework represent another step in the state's journey towards a sustainable, reliable and affordable energy system.
View Ulupono’s presentation from Aug. 30, 2024.
For more information, link to Docket No. 2018-0088