Is HECO ‘Dragging Anchor’ On Push To Renewable Energy?

Some critics complain the utility isn’t moving fast enough to wean the state off fossil fuels, but HECO says it’s met every deadline.

Honolulu Civil Beat - May 24, 2018

By: Stewart Yerton

When Hawaii utility regulators approved a program to let condo residents buy energy from off-site solar farms in December, it seemed a major part of the state’s population was poised to be able to reduce their electric bills and go green when it came to powering their homes.

Hawaiian Electric Industries and its subsidiaries were supposed to submit a plan to fill in the details within 60 days. After that, it seemed, developers could start building small solar farms from which condo dwellers and renters could buy energy.

Nearly six months later, HECO still doesn’t have a viable plan.

Solar Photo voltaic near Dole Wahiawa1
Hawaii utility regulators earlier this month rejected a plan presented by Hawaiian Electric that would allow renters to power their homes with energy from solar farms.

The Hawaii Public Utilities Commission earlier this month told HECO the plan it submitted in February was so unwieldy that the commission wondered if anyone would use it. At the center of HECO’s proposal was a standard form contract containing more than 260 pages of legalese.

The contract “would almost assuredly act as a barrier to participation,” the PUC said.

“Quite frankly, it just sort of pisses me off,” said Sen. Mike Gabbard, who sponsored the 2015 bill establishing the community-based renewable energy program. “It’s been three years since we passed Act 100, and this is not what we had in mind in terms of timely implementation.”

Jim Kelly, HECO’s vice president of corporate relations, said the proposed community renewables contract is similar to a contract the PUC already had approved for ventures with independent power producers. Accordingly, the company thought the PUC would accept the contract without any delays.

The chief of staff for the Blue Planet Foundation, which advocates for the use of renewables, said there is a pattern of HECO struggling to quickly implement new programs.

Kelly stressed that HECO has “hit every regulatory deadline that’s been set in this process. “

Kelly added that the company has met the deadlines while weighing input from a number of interested parties who continually voice their opinions.

“There’s a lot of people in the kitchen,” Kelly said. “And ultimately it comes down to the utility to make this work.”

The community renewables program might be the most recent example, but it isn’t the first time HECO has struggled to implement programs quickly, renewable energy proponents say.

“There is a pattern we’re seeing,” said attorney Melissa Miyashiro, chief of staff for the Blue Planet Foundation, which advocates for the adoption of renewables. “But there’s a pattern of the PUC taking a hard look at these things. And I think that speaks pretty highly of them.”

Isaac Moriwake, an attorney for Earthjustice who frequently spars with HECO in cases before the PUC, commended HECO for adapting to Hawaii’s renewable energy policy, which is one of the nation’s most aggressive. But Moriwake said HECO sometimes moves too deliberately, “dragging anchor” by submitting documents like the community renewables contract.

“I absolutely agree,” Gabbard said.

Isaac Moriwake, an attorney with Earthjustice, said HECO in some cases is “dragging anchor” when it comes to making changes.

A Huge, Disruptive Challenge
All parties agree that HECO faces a monumental task.

State law essentially requires 100 percent of electricity HECO sells by 2045 to be produced from renewable resources. It’s a staggering disruption for a 126-year-old company that sells power to some 460,000 customers statewide.

Where HECO once produced power mainly from a few large generators and delivered it to customers, the company now must deal with increasingly complex sources of energy, including some 80,000 rooftop solar systems, which put varying amounts of power onto HECO’s grid at a given time.

Despite increasing customers, HECO’s sales of electricity have declined over the past several years, the company said in its 2017 annual report.

The systems pose not only a technical challenge for HECO, but also a financial one. Despite increasing customer accounts over the last five years, to about 462,000 in 2017 from 451,000 in 2013, the company’s electricity sales declined during the same period – the apparent result of more people producing their own power rather than buying it from HECO.

Electricity sales dropped about 24 percent to $2.247 billion in 2017 from $2.968 in 2013, according to the company’s 2017 annual report.

Despite the blow to its revenues, HECO says it welcomes the changes.

“Our company is privileged to be at the heart of our state’s ambitious goal to use Hawai‘i’s abundance of renewable resources for 100% of its energy needs,” Constance Lau, president and chief executive of HECO’s parent company, wrote in a letter to shareholders in the 2017 annual report.

But the company has testified against ideas some see as key to the state’s future, such as proposals to let third parties use the HECO grid for a fee — a standard practice on the mainland, known as wheeling, which hasn’t been approved yet in Hawaii.

Rolling out major initiatives, meanwhile, can take years. Simply crafting a plan can be a major production, played out publicly in cases before the PUC.

A case in point is a roadmap to update HECO’s power supplies to include more renewables from diverse sources. The debates over the plan took three years. And although the PUC accepted HECO’s plan in July, it was far from a full-fledged approval: the PUC said some of HECO’s proposals weren’t justified, and the commission conditioned accepting the plan on numerous terms laid out in a 53-page order.

HECO’s Kelly stressed HECO had met all of its deadlines concerning the power supply plan, and that it never expected the PUC to fully approve the plan rather than merely accepting it as part of an ongoing process.

“I wouldn’t look at acceptance as a gentleman’s ‘C,’” Kelly said.

Adopting A New Revenue Model
One of the next big changes facing HECO is a proposal that could fundamentally alter the way it makes money.

Power companies normally make money by spending it: if a utility invests in a capital project approved by regulators, the utility can secure a long-term revenue stream from ratepayers, who pay off the cost of the project including some administrative expenses through their bills.

Both the PUC and the Legislature are looking to tweak that. A performance-based revenue model would tie some revenues to HECO performance goals. While the PUC launched a proceeding to investigate the topic in April, the Legislature passed Senate Bill 2939, which requires the PUC to set up performance-based incentives and penalties by Jan. 1, 2020.

HECO testified that it supported the bill’s intent, but said it opposed the bill “in its current draft because it is potentially too prescriptive and overbroad.”

HECO’s position has struck some as ambiguous.

Left, Jim Robo Chairman and CEO, NEXTERA Energy, Inc. sits next to Connie Lau, President and CEO Hawaiian Electric Industries before speaking at press conference announcing a merger with NEXTERA at suite 800, 1001 Bishop Street. Honolulu, Hawaii. 3 dec 2014. photograph by Cory Lum
Seen during a conference call with Wall Street earlier this month are Constance Lau, center, president and chief executive of HECO’s parent company, and Alan Oshima, chief executive of HECO, third from right. They declined to speculate on why the Legislature had passed a bill requiring the company to adopt a new revenue model.

During an earnings conference call earlier this month, Paul Patterson, a utilities stock analyst with Glen Rock Associates in New York, repeatedly asked why there was a need for a bill when the PUC already was looking at the issue.

“There were some reports that you guys weren’t supportive of (SB) 2939,” Patterson said at one point. “Were your concerns resolved during the legislative process? Or are there any concerns that you guys have now?”

Alan Oshima, HECO’s chief executive, said the company has strongly pushed for performance-based revenue. “Our concerns are the unintended consequences and a rush to judgment,” Oshima said.

For example, Oshima said, a performance-based revenue scheme might hurt the ability of third-party power producers to finance projects. The independent producers access financing based on HECO’s ability to pay for power from them, Oshima said, and if there are uncertainties about HECO’s financial integrity, that could hurt the producers’ ability to obtain reasonable financing.

But for renewables advocates like Blue Planet’s Miyashiro, a bill with a tight deadline could give HECO additional motivation to move quickly.

HECO ‘On The Hook’
While Kelly says HECO thought the community renewables contract would get easy passage by the PUC, the opposite happened: the PUC came down hard against the company. HECO’s proposed contract was so flawed, the PUC said, that it would be a waste of time to try to revise it.

The commission ordered the company to start all over relying on model contracts used in other states for guidance. It also set a page limit.

Kyle Datta, general partner of the Ulupono Initiative, said the problem with the contract is that it’s not designed for smaller solar projects. (A Hawaii-based social investment firm focused on renewable energy, local food production and waste management, Ulupono was founded by Civil Beat publisher Pierre Omidyar and his wife, Pam Omidyar.)

“In Ulupono’s view, this is an excellent opportunity for the utility to demonstrate it can listen and develop a short, simple, standard form contract that community developers can understand and execute,” Datta said.

HECO’s Kelly said the company wants the same thing. In the end, Kelly said, it’s HECO’s job to make it happen.

“The utility’s on the hook for making this work,” he said.