HOUSE OF REPRESENTATIVES

H.B. NO.

2649

TWENTY-EIGHTH LEGISLATURE, 2016

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

relating to energy.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


SECTION 1.  The legislature finds that Hawaii utility ratepayers have been forced to pay escalating prices for electricity under regulatory policies that financially incentivize the investor-owned utility monopoly to increase consumer costs.  Under these conditions, in a competitive market, new companies would emerge to better serve customers with cheaper rates.

Over the last decade, energy efficiency, conservation, and increasingly cheaper solar panels have contributed to declining electricity consumption in Hawaii despite a growing population. While electricity sales have fallen nearly twelve per cent from one thousand twelve gigawatt-hours in 2006 to eight hundred ninety-eight gigawatt hours in 2014, investor-owned utility profits have escalated more than eighty-four per cent from $75,000,000 to over $138,000,000 annually, raising public anger reflected in news stories. 

The growing contradiction between the investor-owned utility's shrinking electricity sales and soaring profits has left many customers wondering where their money is going.  The exception to this profit escalation is the non-profit Kauai Island Utility Cooperative, which has been able to manage utility operations over the last decade with far fewer, and substantially less, base rate increases than each of the Hawaiian Electric Industries' electric utility companies.  The public utilities commission has stated that investor-owned utility rates have skyrocketed in part because the Hawaiian Electric Industries' electric utility companies do not, by any discernible indications, appear to feel financially compelled to implement corresponding decreases in utility expenses to the extent that would occur with declining net revenues.

The legislature further finds that even when consumers attempt to save money by decreasing energy consumption, a policy known as decoupling forces ratepayers to pay for the value of electricity not consumed, among other things.  A 2014 investigation by Honolulu Civil Beat found leaked documents from the public utilities commission revealing that Oahu residents are paying about an extra $95 per year, Maui residents are paying about an extra $57 per year, Hawaii Island residents are paying about an extra $26 more per year, and Molokai and Lanai residents are paying about an extra $38 per year because of decoupling policies.

The legislature finds that current policies also allow investor-owned utilities to profit from new infrastructure spending while passing these costs to ratepayers.  This serves as an incentive to increase infrastructure spending to boost profits, which further inflates ratepayer bills.  The Wall Street Journal found that "the more [utilities] spend, the more profits they earn," and called it "a regulatory system that turns corporate accounting on its head."  Achieving the State's one hundred per cent renewable portfolio standard requires grid upgrades and investment.  However, this necessity should not be a blank check for utilities to justify massive new spending.  Regulatory policies must change to ensure utilities maximize public benefit, reduce ratepayer risk, and meet Hawaii's energy goals at the lowest cost to consumers.

While reviewing these policies, the public utilities commission found that it is difficult to ascertain whether the Hawaiian Electric Industries' electric utility companies' increasing capital investments are strategic investments or simply a series of unrelated capital projects that effectively expand utility rate base and increase profits while appearing to provide little or limited long-term customer value.  With investor-owned utilities passing on nearly all infrastructure costs to ratepayers, the public utilities commission stated that as risk is currently allocated, there does not appear to be an effective incentive for the Hawaiian Electric Industries' electric utility companies to control certain costs, including baseline project costs.

On November 4, 2015, the public utilities commission, for a second time, rejected the investor-owned utilities' plans for future infrastructure spending because the commission is concerned that the implicit deal in the Hawaiian Electric Industries' electric utility companies' preferred plans appears to favor the financial interests of the companies while providing less prominent and less certain benefits for customers.  The commission explained that the Hawaiian Electric Industries' electric utility companies appear to have included resources with higher costs and uncertain feasibility at the expense of other lower-cost renewable sources that could be developed sooner and with lower development risk.  

Finally, the public utilities commission concluded that the Hawaiian Electric Industries' electric utility companies' prominent claim that the power supply improvement plan would result in twenty per cent residential bill reductions is a selectively limited and potentially misleading characterization of the supporting analyses.  Closer examination indicates that the power supply improvement plan costs and rates would increase for Hawaiian Electric Company, and would not decrease substantially for the Maui Electric Company and the Hawaii Electric Light Company.

The legislature finds that investor-owned utilities in Hawaii and around the nation have operated on largely the same business model for over a century.  However, that is rapidly changing with the growth of alternative renewable energy technology, spurring a paradigm shift in new competition and energy economics.  To satisfy shareholder expectations, investor-owned utilities have been forced to make up for lost revenue as a result of declining electricity sales by boosting profits through increasing infrastructure spending and other current policies that can needlessly inflate ratepayer costs.  The public utilities commission has stated that the Hawaiian Electric Industries' electric utility companies appear not to be moving toward the sustainable business model necessary to address technological advancements and increasing customer expectations, and that to date, the utility displays insufficient urgency in addressing this rapidly changing business environment.

The legislature finds that it has an obligation to place the interests of the people first.  Maximizing public benefit likely means a transition to utility models that place the interests of the people first.  However, until a utility model transformation takes place, it is imperative to align investor-owned utility regulatory policies with customers' interests and the State's public policy goals before billions of dollars in additional costs are added to ratepayer electric bills. 

The legislature finds the responsibility of aligning investor-owned utility regulatory policies with customers' interests and the State's public policy goals is not limited to the public utilities commission, but more broadly rests with the State and county governments that represent the public interest.  The regulatory framework under which utilities operate and the scope of regulation by the public utilities commission are established by the legislature, which holds the exclusive authority to issue, amend, or revoke franchise rights which permit utilities to operate in the State.

The purpose of this Act is to protect ratepayers from potentially unnecessary additional costs by requiring that electric utility rates are considered just and reasonable only if the rates are derived from an earnings impact mechanism developed by the public utilities commission.

     SECTION 2.  Section 269-16, Hawaii Revised Statutes, is amended to read as follows:

     "§269-16  Regulation of utility rates; ratemaking procedures.  (a)  All rates, fares, charges, classifications, schedules, rules, and practices made, charged, or observed by any public utility or by two or more public utilities jointly shall be just and reasonable and shall be filed with the public utilities commission.  The rates, fares, classifications, charges, and rules of every public utility shall be published by the public utility in such manner as the public utilities commission may require, and copies shall be furnished to any person on request.

     To the extent the contested case proceedings referred to in chapter 91 are required in any rate proceeding to ensure fairness and to provide due process to parties that may be affected by rates approved by the commission, the evidentiary hearings shall be conducted expeditiously and shall be conducted as a part of the ratemaking proceeding.

     (b)  No rate, fare, charge, classification, schedule, rule, or practice, other than one established pursuant to an automatic rate adjustment clause previously approved by the commission, shall be established, abandoned, modified, or departed from by any public utility, except after thirty days' notice to the commission as prescribed in section 269-12(b), and prior approval by the commission for any increases in rates, fares, or charges.  The commission, in its discretion and for good cause shown, may allow any rate, fare, charge, classification, schedule, rule, or practice to be established, abandoned, modified, or departed from upon notice less than that provided for in section 269-12(b).  A contested case hearing shall be held in connection with any increase in rates, and the hearing shall be preceded by a public hearing as prescribed in section 269-12(c), at which the consumers or patrons of the public utility may present testimony to the commission concerning the increase.  The commission, upon notice to the public utility, may:

     (1)  Suspend the operation of all or any part of the      proposed rate, fare, charge, classification, schedule, rule, or practice or any proposed abandonment or modification thereof or departure therefrom;

     (2)  After a hearing, by order:

         (A)  Regulate, fix, and change all such rates, fares, charges, classifications, schedules, rules, and practices so that the same shall be just and reasonable;

         (B)  Prohibit rebates and unreasonable discrimination between localities or between users or consumers under substantially similar conditions;

         (C)  Regulate the manner in which the property of every public utility is operated with reference to the safety and accommodation of the public;

         (D)  Prescribe its form and method of keeping accounts, books, and records, and its accounting system;

         (E)  Regulate the return upon its public utility property;

         (F)  Regulate the incurring of indebtedness relating to its public utility business; and

         (G)  Regulate its financial transactions; and

     (3)  Do all things that are necessary and in the exercise of the commission's power and jurisdiction, all of which as so ordered, regulated, fixed, and changed are just and reasonable, and provide a fair return on the property of the utility used and useful for public utility purposes.

     (c)  The commission may in its discretion, after public hearing and upon showing by a public utility of probable entitlement and financial need, authorize temporary increases in rates, fares, and charges; provided that the commission shall require by order the public utility to return, in the form of an adjustment to rates, fares, or charges to be billed in the future, any amounts with interest, at a rate equal to the rate of return on the public utility's rate base found to be reasonable by the commission, received by reason of continued operation that are in excess of the rates, fares, or charges finally determined to be just and reasonable by the commission.  Interest on any excess shall commence as of the date that any rate, fare, or charge goes into effect that results in the excess and shall continue to accrue on the balance of the excess until returned.

     (d)  The commission shall make every effort to complete its deliberations and issue its decision as expeditiously as possible and before nine months from the date the public utility filed its completed application; provided that in carrying out this mandate, the commission shall require all parties to a proceeding to comply strictly with procedural time schedules that it establishes.  If a decision is rendered after the nine-month period, the commission shall report in writing the reasons therefor to the legislature within thirty days after rendering the decision.

     Notwithstanding subsection (c), if the commission has not issued its final decision on a public utility's rate application within the nine-month period stated in this section, the commission, within one month after the expiration of the nine-month period, shall render an interim decision allowing the increase in rates, fares and charges, if any, to which the commission, based on the evidentiary record before it, believes the public utility is probably entitled.  The commission may postpone its interim rate decision for thirty days if the commission considers the evidentiary hearings incomplete.  In the event interim rates are made effective, the commission shall require by order the public utility to return, in the form of an adjustment to rates, fares, or charges to be billed in the future, any amounts with interest, at a rate equal to the rate of return on the public utility's rate base found to be reasonable by the commission, received under the interim rates that are in excess of the rates, fares, or charges finally determined to be just and reasonable by the commission.  Interest on any excess shall commence as of the date that any rate, fare, or charge goes into effect that results in the excess and shall continue to accrue on the balance of the excess until returned.

     The nine-month period in this subsection shall begin only after a completed application has been filed with the commission and a copy served on the consumer advocate.  The commission shall establish standards concerning the data required to be set forth in the application in order for it to be deemed a completed application.  The consumer advocate may, within twenty-one days after receipt, object to the sufficiency of any application, and the commission shall hear and determine any objection within twenty-one days after it is filed.  If the commission finds that the objections are without merit, the application shall be deemed to have been completed upon original filing.  If the commission finds the application to be incomplete, it shall require the applicant to submit an amended application consistent with its findings, and the nine-month period shall not commence until the amended application is filed.

     (e)  In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the State of Hawaii, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the commission may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among the organizations, trades, or businesses, if it determines that the distribution, apportionment, or allocation is necessary to adequately reflect the income of any such organizations, trades, or businesses to carry out the regulatory duties imposed by this section.

     (f)  Notwithstanding any law to the contrary, for public utilities having annual gross revenues of less than $2,000,000, the commission may make and amend its rules and procedures to provide the commission with sufficient facts necessary to determine the reasonableness of the proposed rates without unduly burdening the utility company and its customers.  In the determination of the reasonableness of the proposed rates, the commission shall:

     (1)  Require the filing of a standard form application to be developed by the commission.  The standard form application for general rate increases shall describe the specific facts that shall be submitted to support a determination of the reasonableness of the proposed rates, and require the submission of financial information in conformance with a standard chart of accounts to be approved by the commission, and other commission guidelines to allow expeditious review of a requested general rate increase application;

     (2)  Hold a public hearing as prescribed in section 269‑12(c) at which the consumers or patrons of the public utility may present testimony to the commission concerning the increase.  The public hearing shall be preceded by proper notice, as prescribed in section 269‑12; and

     (3)  Make every effort to complete its deliberations and issue a proposed decision and order within six months from the date the public utility files a completed application with the commission; provided that all parties to the proceeding strictly comply with the procedural schedule established by the commission and no person is permitted to intervene.  If a proposed decision and order is rendered after the six-month period, the commission shall report in writing the reasons therefor to the legislature within thirty days after rendering the proposed decision and order.  Prior to the issuance of the commission's proposed decision and order, the parties shall not be entitled to a contested case hearing.

              If all parties to the proceeding accept the proposed decision and order, the parties shall not be entitled to a contested case hearing, and section 269‑15.5 shall not apply.  If the commission permits a person to intervene, the six‑month period shall not apply and the commission shall make every effort to complete its deliberations and issue its decision within the nine‑month period from the date the public utility's completed application was filed, pursuant to subsections (b), (c), and (d).

              If a party does not accept the proposed decision and order, either in whole or in part, that party shall give notice of its objection or nonacceptance within the timeframe prescribed by the commission in the proposed decision and order, setting forth the basis for its objection or nonacceptance; provided that the proposed decision and order shall have no force or effect pending the commission's final decision.  If notice is filed, the above six‑month period shall not apply and the commission shall make every effort to complete its deliberations and issue its decision within the nine‑month period from the date the public utility's completed application was filed as set forth in subsection (d).  Any party that does not accept the proposed decision and order under this paragraph shall be entitled to a contested case hearing; provided that the parties to the proceeding may waive the contested case hearing.

     Public utilities subject to this subsection shall follow the standard chart of accounts to be approved by the commission for financial reporting purposes.  The public utilities shall file a certified copy of the annual financial statements in addition to an updated chart of accounts used to maintain their financial records with the commission and consumer advocate within ninety days from the end of each calendar or fiscal year, as applicable, unless this timeframe is extended by the commission.  The owner, officer, general partner, or authorized agent of the utility shall certify that the reports were prepared in accordance with the standard chart of accounts.

     (g)  Any automatic fuel rate adjustment clause requested by a public utility in an application filed with the commission shall be designed, as determined in the commission's discretion, to:

     (1)  Fairly share the risk of fuel cost changes between the public utility and its customers;

     (2)  Provide the public utility with sufficient incentive to reasonably manage or lower its fuel costs and encourage greater use of renewable energy;

     (3)  Allow the public utility to mitigate the risk of sudden or frequent fuel cost changes that cannot otherwise reasonably be mitigated through other commercially available means, such as through fuel hedging contracts;

     (4)  Preserve, to the extent reasonably possible, the public utility's financial integrity; and

     (5)  Minimize, to the extent reasonably possible, the public utility's need to apply for frequent applications for general rate increases to account for the changes to its fuel costs.

     (h)  Rates made or charged by an electric utility or by two or more electric utilities jointly shall be considered just and reasonable under this section only if the rate is derived from an earnings impact mechanism developed by the commission that directly ties the utility's revenues to the achievement of the following performance-based metrics and conditions:

     (1)  Renewable portfolio standards in compliance with section 269-92;

     (2)  Ratepayer cost reduction;

     (3)  Reliability and safety;

     (4)  Satisfactory levels of customer service;

     (5)  Information access, including but not limited to public access to electric system planning data and aggregated customer energy usage date;

     (6)  The interconnection of distributed energy resources to meet public demand; and

     (7)  Procurement of power generation from non-utility owned resources in place of existing, planned, and new utility-owned resources and power generating facilities."

     SECTION 3.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval; provided that the public utilities commission may delay the implementation of the requirements of this Act until no later than January 1, 2020.

 

INTRODUCED BY:

_____________________________

 

 



 

Report Title:

PUC; Electric Utilities; Rates

 

Description:

Provides that electric utility rates or rate changes shall only be considered just and reasonable if the rate is derived from an earnings impact mechanism that directly ties the utility's revenues to the achievement of certain performances-based metrics and conditions.  Effective upon approval, but allows PUC to delay implementation until no later than 1/1/2020.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.