Performance-Based Ratemaking Becomes Law in Hawaii
The new law will link utility revenues to hitting various customer-focused performance metrics, including the interconnection of solar and energy storage.
Hawaii Governor David Ige signed a bill into law Tuesday that reforms the century-old electric utility business model, to better align utility ratemaking processes with the integration of renewable energy resources.
The Ratepayer Protection Act (SB 2939) sets a 2020 deadline for the state Public Utilities Commission to establish different incentives and penalties that link electric utility revenues to the utility’s success at hitting various customer-focused performance metrics. The list of metrics includes electric service reliability, reduced volatility of electric rates, timely execution of competitive procurements, the rapid integration of renewable energy sources, and the quality interconnection of customer-sited resources such assolarand battery storage.
“This bill is a big win for local consumers who will pay less for better electric service with more options for home solar and batteries, and it is a responsible step forward helping utilities transition to a sustainable business model that can survive disruption in the energy sector,” said Hawaii State Representative Chris Lee, Chair of the Committee on Energy and Environmental Protection, in a statement.
According to the Hawaii Solar Energy Association (HSEA), the signing of SB 2939 makes Hawaii the first state to have performance-based ratemaking mechanisms in statute. Hawaii is currently also the only state in the nation with a target to achieve 100 percent renewable electricity, with a deadline set for 2045.
“Performance-based ratemaking is where the rubber meets the road for bleeding-edge energy policy,” said HSEA Executive Director Will Giese. “If the 2045 renewable portfolio standard was the vehicle to a clean energy future, then [performance-based ratemaking] is the engine that will get us there.”
In passing the bill, the lawmakers expressed concern that the traditional way electric utilities get paid would result in higher costs to modernize the electric grid, due to a focus on utility-owned projects.
“The 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 bill preamble states.
The preamble also notes that some utility performance incentives are being considered in existing dockets at the PUC. That includes a docket (No. 2018-0088) recently opened to “investigate the economic and policy issues associated with performance-based regulation,” and the Hawaii PUC’s landmark white paper, “Inclinations on the Future of the Electric Utility,” which served as a guiding document for the language of the bill…..
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