Hawaii Public Utilities Commission Approves New Method for Setting Electric Rates to Support Clean Energy Initiatives

On February 19, 2010, the Hawaii Public Utilities Commission (PUC) approved a new method for setting electric rates designed to encourage a clean energy economy for Hawaii.

Under the new "decoupling" method, electric revenues would be de-linked, or "decoupled," from the amount of electricity (kilowatt-hours) sold. The decoupling proposal was submitted jointly by the Hawaii Division of Consumer Advocacy and the Hawaiian Electric utilities (Hawaiian Electric, Maui Electric, and Hawaii Electric Light Company) as part of a PUC docket opened in October 2008.

The new rate setting model is an important milestone in achieving a comprehensive set of policies in the landmark energy agreement signed in October 2008 by Governor Linda Lingle, the State Department of Business, Economic Development and Tourism, the State Consumer Advocate, and the Hawaiian Electric utilities as part of the Hawaii Clean Energy Initiative.

Under that agreement the utilities committed to much more aggressive clean energy goals including increasing the proportion of renewable energy in Hawaii from 25% by the year 2020 to 40% by the year 2030 (among the most aggressive goals in the nation), adding new energy efficiency goals, implementing a feed-in tariff to speed the addition of renewable energy projects, and pursuing a smart grid that includes advanced metering to give customers more options such as residential time-of-use electric rates. The concept of decoupling, which has been adopted for utilities in California, Vermont, New York and many other progressive jurisdictions, was also endorsed by other participants in the docket including environmental and renewable energy groups.

"This is an important step in helping carry out our state's energy policy," said Dick Rosenblum, Hawaiian Electric Company president and CEO. "Ensuring the right regulatory model is in place will help move Hawaii toward a clean energy future that will benefit customers and our economy, protect the environment, increase our energy security and allow the utility to better provide the services and support we need to get there."

Under a decoupled system, the PUC approves a revenue level based on the services it authorizes the company to undertake on behalf of customers. Rates are then adjusted based on varying sales levels, allowing the utility to continue recovering the costs of providing those services, but not earn additional profit from higher sales. This model provides greater support for energy efficiency and conservation and achievement of Hawaii's clean energy goals.

Under the agreement with the Consumer Advocate, rates also would increase or decrease between formal rate cases largely based on independent cost indices and adjustments would be allowed to recover PUC-approved capital additions.

The PUC's decision requires the Consumer Advocate and the Hawaiian Electric utilities to propose a final decision and order within 30 days, detailing the components and implementation for decoupling. Other parties in the docket will be able to comment on this proposed order. The PUC must issue a final decision and order before decoupling can be implemented.

Hawaiian Electric Company, together with its subsidiaries Maui Electric Company and Hawaii Electric Light Company, supplies power to more than 400,000 customers, or 95% of the population on Oahu, Hawaii, Maui, Lanai and Molokai. It is a subsidiary of Hawaiian Electric Industries (NYSE:HE).