Earlier this week the Hawai‘i Governor David Ige signed into law the Hawai‘i Ratepayer Protection Act, SB 2939 SD 2, requiring the Hawai‘i Public Utility Commission (“PUC”) to develop a performance based regulation model that will “break the direct link between allowed revenues and investment levels.”
In enacting the legislation, the Hawai‘ian Legislature recognized that integrating more renewable resources into the grid and reducing carbon emissions affects the traditional utility business model. Under the traditional cost-of-service model, a regulated distribution utility’s earnings are based on its revenue requirement and the size of its load from which it recovers that requirement. The revenue requirement, in turn, is based on a combination of:
- The utility’s operating costs (e.g. more consumption = more fuel = higher costs);
- A return on its rate base which is largely derived from the level of prudent capital investment that the utility had made, or was expecting to make, in plant and other assets (higher investment = higher return); and
- The recovery of depreciation expenses on those capital investments.
The Hawai‘ian Legislature expressed concern that in transitioning energy generation to renewable energy, utilities are reducing their fossil fuel purchases, but will be spending more on capital projects. The bill states that “[t]he legislature is concerned that the existing regulatory compact misaligns the interests of customers and utilities because it may result in a bias toward expending utility capital on utility-owned projects that may displace more efficient or cost-effective options, such as distributed energy resources owned by customers or projects implemented by independent third parties.” The Legislature “concludes that it must ensure a change to the regulatory compact to promote decisions and strategies that will maximize public benefit, reduce ratepayer risk, and meet Hawaii’s energy goals.”
While other states and public service commissions have adopted various performance based regulation mechanisms, this law earns Hawai‘i the distinction of becoming the first state to enact legislation to decouple a utility’s revenues from its capital investments.
The Act directs the Hawai‘i PUC to establish by January 1, 2020 “performance incentives and penalty mechanisms that directly tie an electric utility revenues to that utility’s achievement on performance metrics.” These metrics are to include, but not be limited to:
- Certain economic incentives or cost-recovery mechanisms;
- Volatility and affordability of electric rates and customer electric bills;
- Electric service reliability;
- Customer engagement and satisfaction, including customer options for managing electricity costs;
- Access to utility system information, including, but not limited to, public access to electric system planning data and aggregated customer energy use data and individual access to granular information about an individual customer’s own energy use data;
- Rapid integration of renewable energy sources, including quality interconnection of customer-sited resources; and
- Timely execution of competitive procurement, third-party interconnection, and other business processes.
The Act does not apply to member-owned cooperative electric utilities.
DOE Opens Informal Comment Period on FPA Section 202(c) Emergency Authority
Since First Energy Solutions Corp. asked DOE to issue a Federal Power Act (FPA) Section 202(c) emergency order requiring PJM to provide full cost recovery to certain nuclear- and coal-fired generators last month, energy industry organizations have responded to the request, and DOE has opened an unofficial comment period using its 202(c) authority.
On March 30th, a diverse group of energy industry trade associations* submitted a joint request to DOE Secretary Perry to establish a formal notice and comment period of at least 60 days to allow interested parties to respond. These groups argued that First Energy’s request has far-reaching implications for the PJM markets and on a broad spectrum of parties, making the opportunity for meaningful stakeholder involvement imperative.
While DOE has not formally responded to the energy industry trade associations, last week, DOE opened an unofficial comment period and updated its website to provide an email address intended for the receipt of all public comments and requests related to FPA Section 202(c). DOE made clear, however, that:
DOE has not indicated how long the informal comment period will remain open, but states that any additional information related to 202(c) procedures will be announced on its website.
Energy industry organizations continue to respond to First Energy’s request. The American Public Power Association urged Secretary Perry in an April 9 submittal to reject First Energy’s request, arguing that no emergency exists within the meaning of FPA Section 202(c), and that FERC already considered and rejected First Energy’s arguments in the proposed grid resilience pricing rule. In addition, the Electric Power Supply Association submitted a letter to President Trump last Friday, stating that no emergency warranting the use of 202(c) authority exists, and that “[s]ince all electricity suppliers face the challenges of current market conditions . . . federal and state policies should be pursued on a fuel neutral basis to best serve consumers.”
* These groups included Advanced Energy Economy, the American Council on Renewable Energy, the American Forest & Paper Association, the American Petroleum Institute, the American Wind Energy Association, the Electric Power Supply Association, the Electricity Consumers Resource Council, the Independent Petroleum Association of America, the Interstate Natural Gas Association of America, the Natural Gas Supply Association, and the Solar Energy Industries Association.