Hawaiian Electric: Final rate decision results in creation of risk-sharing approach to cost of fossil fuels

The final decision results in no increase in electric rates for Hawaiian Electric customers on Hawaii Island, the company said, noting that it filed its request for a 3.4%, or $13.4m, increase in revenue in December 2018

Hawaiian Electric on July 29 said that the Hawaii Public Utilities Commission has issued a final decision in the company’s rate case, resulting in the company no longer passing through to customers 100% of the costs of fossil fuels used for generation.

Instead, 2% of the fossil fuel cost difference relative to a baseline price will be at the company’s risk, up to a cap of about $600,000, the company said.

The creation of the risk-sharing approach to the cost of fossil fuels is consistent with a similar requirement set for Oahu and Maui County utilities, the company said.

The final decision results in no increase in electric rates for Hawaiian Electric customers on Hawaii Island, the company said, noting that it filed its request for a 3.4%, or $13.4m, increase in revenue in December 2018. Hawaiian Electric said that in requesting the rate increase, it had cited continued improvements to the power grid to help integrate more renewable resources, while improving reliability.

The company said that the commission’s final determination follows an interim decision that it issued in November 2019, in which regulators declined to approve the revenue increase sought by Hawaiian Electric.

According to the commission’s July 28 final decision, the commission found that Hawaii Electric Light Company (HELCO) “has not satisfactorily justified increases to its 2019 Test Year Operations & Maintenance” (O&M) expenses, and that a recent management audit of HELCO’s parent company, Hawaiian Electric Company, Inc., (HECO), “has identified a number of areas ripe for improvement across all of the Hawaiian Electric Companies, which reflect existing operational inefficiencies.”

The commission said that it determines that the appropriate return on common equity (ROE) for HELCO’s 2019 Test Year is 9.50%, and that it approves a capital structure of 58% total equity. The commission said that based on those findings, it approves as fair a rate of return on average rate base of 7.52%.

The commission also noted that it “acknowledges the unprecedented and challenging economic conditions facing HELCO ratepayers. As Hawaii Island and the rest of the state address record levels of unemployment and an uncertain economic future, it is especially important to ensure that proper cost control measures and operational efficiencies are reflected in the rates charged for what many consider an essential service.”

Among other things, the commission noted that it has approved a modification to HELCO’s energy cost recovery clause (ECRC) such that HELCO is now exposed to a portion of the risk of the volatility of fossil fuel markets. Rather than serving as a complete pass-through for fossil fuel costs, the ECRC will require HELCO to share in the fuel price risks borne by customers, which provides an incentive for HELCO to accelerate efforts to reduce its reliance on fossil fuels, the commission said.

The commission said that it expects HELCO to exhibit sustained initiative in pursuing and implementing renewable energy, including improving the speed and efficiency in resolving distributed energy resources interconnection disputes, continuing to pursue power purchase agreements for renewable energy at competitive prices, and aggressively exploring innovative ways to further reduce its reliance on fossil fuels.

The commission said that HELCO is to submit a proposed revised ECRC tariff consistent with the rulings in the final decision within 30 days of the decision.




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About Corina Rivera-Linares 3286 Articles
Corina Rivera-Linares was TransmissionHub’s chief editor until August 2021, as well as part of the team that established TransmissionHub in 2011. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial from 2005 to 2011. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines.