SB 2487: PUC; Ratemaking; Performance-Based Incentives; Hawaii Ratepayer Protection Act of 2026
- Session Year: 2025-2026
- House: Senate
- Latest Version Date: 2026-05-01
Current Status:
Passed
(2026-06-05: Act 093, on 06/05/2026 (Gov. Msg. No. 1193).)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Final Decking
Enacted
Requires the Public Utilities Commission to establish performance-based incentives, including revenue adjustment mechanisms, cost control mechanisms, and reward and penalty mechanisms on or before 1/1/2027. Clarifies that the Public Utilities Commission is authorized to adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives. (CD1)
Requires the Public Utilities Commission to establish performance-based incentives, including revenue adjustment mechanisms, cost control mechanisms, and reward and penalty mechanisms on or before 1/1/2027. Clarifies that the Public Utilities Commission is authorized to adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives. Requires the Public Utilities Commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if the Commission resets an electric utility's allowed revenues based on consideration of the utility's costs. Effective 7/1/3000. (HD1)
Clarifies that, for electric utilities, "performance-based incentives" include revenue adjustment mechanisms, cost control mechanisms, rewards for superior performance, and penalties for subpar performance. Confirms that the Public Utilities Commission may adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives. Requires the Commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if the Commission resets an electric utility's allowed revenues based on consideration of the utility's costs. Effective 7/1/2050. (SD1)
Clarifies that, for electric utilities, "performance-based incentives" include revenue adjustment mechanisms, cost control mechanisms, rewards for superior performance, and penalties for subpar performance. Confirms that the Public Utilities Commission may adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives. Requires the Commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if the Commission resets an electric utility's allowed revenues based on consideration of the utility's costs.
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THE SENATE |
S.B. NO. |
2487 |
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THIRTY-THIRD LEGISLATURE, 2026 |
S.D. 1 |
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STATE OF HAWAII |
H.D. 1 |
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C.D. 1 |
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A BILL FOR AN ACT
RELATING TO THE PUBLIC UTILITIES COMMISSION.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 2. The legislature finds that, in 2018, the legislature enacted the Hawaii Ratepayer Protection Act to provide proactive protections to the State's electric utility customers. Act 5, Session Laws of Hawaii 2018 (Act 5), provided that electric utility rates would be considered just and reasonable only if they are derived from a performance-based model for determining utility revenues. Act 5 emphasized that the State should adjust electric utilities' interests to better align with customers' interests. The legislature found that there was "extraordinary urgency" for this realignment.
Act 5 directed the public utilities commission to establish a performance-based model for utility regulation and ratemaking based on performance incentives that "directly tie an electric [utility's] revenues to that utility's achievement on performance metrics and break the direct link between allowed revenues and investment levels." The intent of this performance-based model was to depart from the traditional cost‑of-service model that rewards utilities for increasing the utility's capital expenditures and bases allowed revenues on the value of the rate base, irrespective of the utility's performance. The legislature recognized that the traditional model misaligned the interests of customers and utilities because it created a possible bias toward utilities that expended capital on utility-owned projects, rather than utilities that supported more efficient or cost-effective options like customer-owned distributed energy resources or independent, third-party projects. The legislature concluded that the State needed a shift away from the traditional focus on utility costs to a more modern focus on performance.
The legislature further finds that, in response to the Hawaii Ratepayer Protection Act, the public utilities commission opened its performance-based regulation proceeding as a historic, multi-phase process that included participation from local and national experts. In December 2020, the commission established a comprehensive framework for performance-based regulation that has since been nationally recognized as a leading model. The guiding principles for this framework include a customer-centric approach, including day-one savings for customers, administrative efficiency through a simplified regulatory framework, and utility financial integrity with the opportunity to earn profits and rewards through performance. The main features of the framework include a multi-year rate period of five years, during which the utility's allowed revenues are determined not by traditional rate cases but by an objective index tied to general inflation. The utility's profits are driven largely by its ability to capture cost savings and efficiencies. The framework also includes performance incentive mechanisms to reward or penalize a utility based on its performance on public interest priorities like reliability, accelerated progress toward renewable energy, and improved customer service. The commission emphasized that, with the transition away from traditional cost-of-service regulation, customers would benefit from lower utility costs.
In establishing the performance-based framework, the public utilities commission recognized the need for a transformative and lasting shift away from cost-of-service regulation. The commission made clear that, after the five-year rate control period, the commission anticipated continuing to refine the performance-based framework and did not envision returning to cost-of-service regulation. However, now that the end of the rate control period is approaching, the legislature is concerned about the integrity of the performance-based framework and the commission's compliance with the Hawaii Ratepayer Protection Act. For example, last year, the commission adopted the utility's proposal to initiate a traditional, cost-of-service rate to "re-base" the utility's allowed revenues using its projected increased costs. This cost-based rebasing of revenues backtracks on the progress and reforms the State has made and violates the commission's previous commitment not to return to cost-of-service regulation.
The legislature is also aware that the public utilities commission has insisted on requiring a "forward test year" approach to the rate case, in which a utility requests a rate increase based on future cost projections. This return to forecast cost‑of‑service ratemaking encourages utilities to make "wish lists" of capital projects to boost utility profits, thereby inflating customer rates. Jurisdictions using forecast costs instead of historical costs end up paying substantially higher rates.
The legislature recognizes that the public utilities commission has expressed the belief that it is constrained by existing legal provisions to follow certain traditional cost‑bound methods, notwithstanding the mandates of the Hawaii Ratepayer Protection Act. As a result, the commission is inviting a return to "cost-plus" ratemaking that threatens to undermine the benefits and progress achieved under the performance-based framework. This poses the risk of significant rate increases for customers.
Based on this stance by the public utilities commission and the risk of rate increases for customers, the legislature believes that further clarification and guidance are needed to ensure that the commission upholds the legislature's original intent under the Hawaii Ratepayer Protection Act and continues the progress made under the commission's performance-based regulatory framework. These clarifications will help ensure that both electric utilities and ratepayers will continue to benefit from the utilities' improved performance, lower costs, and lower rates.
Accordingly, the purpose of this Act is to provide clarification and guidance by:
(2) Clarifying that the public utilities commission is authorized to adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives.
SECTION 3. Section 269-16.1, Hawaii Revised Statutes, is amended to read as follows:
"§269-16.1
[Performance incentive
and penalty mechanisms.] Performance-based
incentives; regulation of electric utility rates. (a)
On or before January 1, [2020,] 2027, the public utilities
commission shall establish [performance] performance‑based
incentives, including revenue adjustment mechanisms, cost control
mechanisms, and reward and penalty mechanisms, that directly tie an
electric [[]utility's[]] revenues to that utility's [achievement
on] performance [metrics] and break the direct link between allowed
revenues and investment levels. The [performance]
performance-based incentives [and penalty mechanisms], as may be
amended by the public utilities commission from time to time, shall apply to
the regulation of electric utility rates under [section 269-16.] this
chapter.
(b) Notwithstanding any law to the contrary, including the ratemaking procedures described in section 269-16, the public utilities commission may adopt, by commission order, alternative ratemaking procedures to establish electric utility rates and performance-based incentives for purposes of subsection (a); provided that the rates shall be derived from a performance‑based model for determining utility revenues.
[(b)]
(c) In developing [performance
incentive and penalty mechanisms,] performance-based incentives, the
public utilities commission's review of electric utility performance shall
consider[, but not be limited to,] the [following]:
(1) [The economic] Economic
incentives and cost-recovery mechanisms described in section 269-6(e);
(2) Volatility and affordability of electric rates and customer electric bills;
(3) [Electric service
reliability;] Reliability of electric service;
(4) [Customer] Level
of customer engagement and satisfaction, including customer options for
managing electricity costs;
(5) [Access to] Accessibility
of utility system information, including [but not limited to public
access to] electric system planning data [and], aggregated
customer energy use data [and individual access to], and granular
information about an individual customer's own energy use data;
(6) Rapid integration of renewable energy sources, including quality interconnection of customer-sited resources; and
(7) Timely execution of competitive procurement, third‑party interconnection, and other business processes.
[(c)]
(d) This section shall not apply
to a member-owned cooperative electric utility."
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect upon its approval.
Report Title:
PUC; Ratemaking; Performance-Based Incentives; Hawaii Ratepayer Protection Act of 2026
Description:
Requires the Public Utilities Commission to establish performance-based incentives, including revenue adjustment mechanisms, cost control mechanisms, and reward and penalty mechanisms on or before 1/1/2027. Clarifies that the Public Utilities Commission is authorized to adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives. (CD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
|
THE SENATE |
S.B. NO. |
2487 |
|
THIRTY-THIRD LEGISLATURE, 2026 |
S.D. 1 |
|
|
STATE OF HAWAII |
H.D. 1 |
|
|
|
|
|
|
|
||
|
|
||
A BILL FOR AN ACT
RELATING TO THE PUBLIC UTILITIES COMMISSION.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 2. The legislature finds that, in 2018, the legislature enacted the Hawaii Ratepayer Protection Act to provide proactive protections to the State's electric utility customers. Act 5, Session Laws of Hawaii 2018 (Act 5), provided that electric utility rates would be considered just and reasonable only if they are derived from a performance-based model for determining utility revenues. Act 5 emphasized that the State should adjust electric utilities' interests to better align with customers' interests. The legislature found that there was "extraordinary urgency" for this realignment.
Act 5 directed the public utilities commission to establish a performance-based model for utility regulation and ratemaking based on performance incentives that "directly tie an electric [utility's] revenues to that utility's achievement on performance metrics and break the direct link between allowed revenues and investment levels." The intent of this performance-based model was to depart from the traditional cost‑of-service model that rewards utilities for increasing the utility's capital expenditures and bases allowed revenues on the value of the rate base, irrespective of the utility's performance. The legislature recognized that the traditional model misaligned the interests of customers and utilities because it created a possible bias toward utilities that expended capital on utility-owned projects, rather than utilities that supported more efficient or cost-effective options like customer-owned distributed energy resources or independent, third-party projects. The legislature concluded that the State needed a shift away from the traditional focus on utility costs to a more modern focus on performance.
The legislature further finds that, in response to the Hawaii Ratepayer Protection Act, the public utilities commission opened its performance-based regulation proceeding as a historic, multi-phase process that included participation from local and national experts. In December 2020, the commission established a comprehensive framework for performance-based regulation that has since been nationally recognized as a leading model. The guiding principles for this framework include a customer-centric approach, including day-one savings for customers, administrative efficiency through a simplified regulatory framework, and utility financial integrity with the opportunity to earn profits and rewards through performance. The main features of the framework include a multi-year rate period of five years, during which the utility's allowed revenues are determined not by traditional rate cases but by an objective index tied to general inflation. The utility's profits are driven largely by its ability to capture cost savings and efficiencies. The framework also includes performance incentive mechanisms to reward or penalize a utility based on its performance on public interest priorities like reliability, accelerated progress toward renewable energy, and improved customer service. The commission emphasized that, with the transition away from traditional cost-of-service regulation, customers would benefit from lower utility costs.
In establishing the performance-based framework, the public utilities commission recognized the need for a transformative and lasting shift away from cost-of-service regulation. The commission made clear that, after the five-year rate control period, the commission anticipated continuing to refine the performance-based framework and did not envision returning to cost-of-service regulation. However, now that the end of the rate control period is approaching, the legislature is concerned about the integrity of the performance-based framework and the commission's compliance with the Hawaii Ratepayer Protection Act. For example, last year, the commission adopted the utility's proposal to initiate a traditional, cost-of-service rate to "re-base" the utility's allowed revenues using its projected increased costs. This cost-based rebasing of revenues backtracks on the progress and reforms the State has made and violates the commission's previous commitment not to return to cost-of-service regulation.
The legislature is also aware that the public utilities commission has insisted on requiring a "forward test year" approach to the rate case, in which a utility requests a rate increase based on future cost projections, rather than the historical cost trends that have been controlled under the performance-based framework. This return to forecast cost‑of‑service ratemaking encourages utilities to make "wish lists" of capital projects to boost utility profits, thereby inflating customer rates. However, the predominant practice in rate cases is to use historical costs adjusted for known and measurable changes, rather than forecast future costs, as the basis for regulatory rate analyses. Jurisdictions using forecast costs instead of historical costs end up paying substantially higher rates.
The legislature recognizes that the public utilities commission has expressed the belief that it is constrained by existing legal provisions to follow certain traditional cost-bound methods, notwithstanding the mandates of the Hawaii Ratepayer Protection Act. As a result, the commission is inviting a return to "cost-plus" ratemaking that threatens to undermine the benefits and progress achieved under the performance-based framework. This poses the risk of significant rate increases for customers.
Based on this stance by the public utilities commission and the risk of rate increases for customers, the legislature believes that further clarification and guidance are needed to ensure that the commission upholds the legislature's original intent under the Hawaii Ratepayer Protection Act and continues the progress made under the commission's performance-based regulatory framework. These clarifications will help ensure that both electric utilities and ratepayers will continue to benefit from the utilities' improved performance, lower costs, and lower rates.
Accordingly, the purpose of this Act is to provide clarification and guidance by:
(2) Clarifying that the public utilities commission is authorized to adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives; and
(3) Requiring the public utilities commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if the commission resets an electric utility's allowed revenues based on consideration of the utility's costs.
SECTION 3. Section 269-16.1, Hawaii Revised Statutes, is amended to read as follows:
"§269-16.1
[Performance incentive
and penalty mechanisms.] Performance-based
incentives; regulation of electric utility rates. (a)
On or before January 1, [2020,] 2027, the public utilities
commission shall establish [performance] performance‑based
incentives, including revenue adjustment mechanisms, cost control
mechanisms, and reward and penalty mechanisms, that directly tie an
electric [[]utility's[]] revenues to that utility's [achievement
on] performance [metrics] and break the direct link between allowed
revenues and investment levels. The [performance]
performance-based incentives [and penalty mechanisms], as may be
amended by the public utilities commission from time to time, shall apply to
the regulation of electric utility rates under [section 269-16.] this
chapter.
(b) Notwithstanding any law to the contrary, including the ratemaking procedures described in section 269-16, the public utilities commission may adopt, by commission order, alternative ratemaking procedures to establish electric utility rates and performance-based incentives for purposes of subsection (a); provided that the rates shall be derived from a performance‑based model for determining utility revenues.
(c) If resetting an electric utility's allowed revenues based on consideration of the utility's costs, the commission shall apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs, rather than relying on a forward test period.
[(b)]
(d) In developing [performance
incentive and penalty mechanisms,] performance-based incentives, the
public utilities commission's review of electric utility performance shall
consider[, but not be limited to,] the [following]:
(1) [The economic] Economic
incentives and cost-recovery mechanisms described in section 269-6(e);
(2) Volatility and affordability of electric rates and customer electric bills;
(3) [Electric service
reliability;] Reliability of electric service;
(4) [Customer] Level
of customer engagement and satisfaction, including customer options for
managing electricity costs;
(5) [Access to] Accessibility
of utility system information, including [but not limited to public
access to] electric system planning data [and], aggregated
customer energy use data [and individual access to], and granular
information about an individual customer's own energy use data;
(6) Rapid integration of renewable energy sources, including quality interconnection of customer-sited resources; and
(7) Timely execution of competitive procurement, third‑party interconnection, and other business processes.
[(c)]
(e) This section shall not apply
to a member-owned cooperative electric utility."
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect on July 1, 3000.
Report Title:
PUC; Ratemaking; Performance-Based Incentives; Hawaii Ratepayer Protection Act of 2026
Description:
Requires the Public Utilities Commission to establish performance-based incentives, including revenue adjustment mechanisms, cost control mechanisms, and reward and penalty mechanisms on or before 1/1/2027. Clarifies that the Public Utilities Commission is authorized to adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives. Requires the Public Utilities Commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if the Commission resets an electric utility's allowed revenues based on consideration of the utility's costs. Effective 7/1/3000. (HD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
|
THE SENATE |
S.B. NO. |
2487 |
|
THIRTY-THIRD LEGISLATURE, 2026 |
S.D. 1 |
|
|
STATE OF HAWAII |
|
|
|
|
|
|
|
|
||
|
|
||
A BILL FOR AN ACT
RELATING TO THE PUBLIC UTILITIES COMMISSION.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
Act 5 directed the public utilities commission to establish a performance-based model for utility regulation and ratemaking based on performance incentives that "directly tie an electric [utility's] revenues to that utility's achievement on performance metrics and break the direct link between allowed revenues and investment levels." The intent of this performance-based model was to depart from the traditional cost‑of-service model that rewards utilities for increasing the utility's capital expenditures and bases allowed revenues on the value of the rate base, irrespective of the utility's performance. The legislature recognized that the traditional model misaligned the interests of customers and utilities because it created a possible bias toward utilities that expended capital on utility-owned projects, rather than utilities that supported more efficient or cost-effective options like customer-owned distributed energy resources or independent, third-party projects. The legislature concluded that the State needed a shift away from the traditional focus on utility costs to a more modern focus on performance.
The legislature further finds that, in response to the Hawaii Ratepayer Protection Act, the public utilities commission opened its performance-based regulation proceeding as a historic, multi-phase process that included participation from local and national experts. In December 2020, the commission established a comprehensive framework for performance-based regulation that has since been nationally recognized as a leading model. The guiding principles for this framework include a customer-centric approach, including day-one savings for customers, administrative efficiency through a simplified regulatory framework, and utility financial integrity with the opportunity to earn profits and rewards through performance. The main features of the framework include a multi-year rate period of five years, during which the utility's allowed revenues are determined not by traditional rate cases but by an objective index tied to general inflation. The utility's profits are driven largely by its ability to capture cost savings and efficiencies. The framework also includes performance incentive mechanisms to reward or penalize a utility based on its performance on public interest priorities like reliability, accelerated progress toward renewable energy, and improved customer service. The commission emphasized that, with the transition away from traditional cost-of-service regulation, customers would benefit from lower utility costs.
In establishing the performance-based framework, the public utilities commission recognized the need for a transformative and lasting shift away from cost-of-service regulation. The commission made clear that, after the five-year rate control period, the commission anticipated continuing to refine the performance-based framework and did not envision returning to cost-of-service regulation. However, now that the end of the rate control period is approaching, the legislature is concerned about the integrity of the performance-based framework and the commission's compliance with the Hawaii Ratepayer Protection Act. For example, last year, the commission adopted the utility's proposal to initiate a traditional, cost-of-service rate to "re-base" the utility's allowed revenues using its projected increased costs. This cost-based rebasing of revenues backtracks on the progress and reforms the State has made and violates the commission's previous commitment not to return to cost-of-service regulation.
The legislature is also aware that the public utilities commission has insisted on requiring a "forward test year" approach to the rate case, in which a utility requests a rate increase based on future cost projections, rather than the historical cost trends that have been controlled under the performance-based framework. This return to forecasted cost‑of‑service ratemaking encourages utilities to make "wish lists" of capital projects to boost utility profits, thereby inflating customer rates. However, the predominant practice in rate cases is to use historical costs adjusted for known and measurable changes, rather than forecasted future costs, as the basis for regulatory rate analyses. Jurisdictions using forecasted costs instead of historical costs end up paying substantially higher rates.
The legislature recognizes that the public utilities commission has expressed the commission's belief that it is constrained by existing legal provisions to follow certain traditional cost-bound methods, notwithstanding the mandates of the Hawaii Ratepayer Protection Act. As a result, the commission is inviting a return to "cost-plus" ratemaking that threatens to undermine the benefits and progress achieved under the performance-based framework. This poses the risk of significant rate increases for customers.
Based on this stance by the public utilities commission, and the risk of rate increases for customers, the legislature believes that further clarification and guidance are needed to ensure that the commission upholds the legislature's original intent under the Hawaii Ratepayer Protection Act and continues the progress made under the commission's performance-based regulatory framework. These clarifications will help ensure that both electric utilities and ratepayers will continue to benefit from the utilities' improved performance, lower costs, and lower rates.
Accordingly, the purpose of this Act is to provide clarification and guidance by:
(2) Confirming that the public utilities commission may adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives that fulfill the requirements of section 269-16.1, Hawaii Revised Statutes; and
(3) Requiring the commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if resetting an electric utility's allowed revenues based on consideration of the utility's costs.
SECTION 2. This Act shall be known and may be cited as the "Hawaii Ratepayer Protection Act of 2026".
SECTION 3. Section 269-16.1, Hawaii Revised Statutes, is amended to read as follows:
"§269-16.1
[Performance incentive
and penalty mechanisms.] Performance-based
incentives; regulation of electric utility rates. (a)
On or before January 1, [2020,] 2027, the public utilities
commission shall establish [performance] performance‑based
incentives, including revenue adjustment mechanisms, cost control
mechanisms, and reward and penalty mechanisms, that directly tie an
electric [[]utility's[]] revenues to that utility's [achievement
on] performance [metrics] and break the direct link between allowed
revenues and investment levels. The [performance]
performance-based incentives [and penalty mechanisms], as may be
amended by the public utilities commission from time to time, shall apply to
the regulation of electric utility rates under [section 269-16.] this
chapter.
(b) Notwithstanding any law to the contrary, including the ratemaking procedures described in section 269-16, the public utilities commission may adopt, by commission order, alternative ratemaking procedures to establish electric utility rates and performance-based incentives for purposes of subsection (a); provided that the rates shall be derived from a performance‑based model for determining utility revenues.
(c) If resetting an electric utility's allowed revenues based on consideration of the utility's costs, the commission shall apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs, rather than relying on a forward test period.
[(b)]
(d) In developing [performance
incentive and penalty mechanisms,] performance-based incentives, the
public utilities commission's review of electric utility performance shall
consider[, but not be limited to,] the [following]:
(1) [The economic] Economic
incentives and cost-recovery mechanisms described in section 269-6(e);
(2) Volatility and affordability of electric rates and customer electric bills;
(3) [Electric service
reliability;] Reliability of electric service;
(4) [Customer] Level
of customer engagement and satisfaction, including customer options for
managing electricity costs;
(5) [Access to] Accessibility
of utility system information, including [but not limited to public
access to] electric system planning data [and], aggregated
customer energy use data [and individual access to], and granular
information about an individual customer's own energy use data;
(6) Rapid integration of renewable energy sources, including quality interconnection of customer-sited resources; and
(7) Timely execution of competitive procurement, third‑party interconnection, and other business processes.
[(c)]
(e) This section shall not apply
to a member-owned cooperative electric utility."
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect on July 1, 2050.
Report Title:
PUC; Ratemaking; Performance-Based Incentives; Hawaii Ratepayer Protection Act of 2026
Description:
Clarifies that, for electric utilities, "performance-based incentives" include revenue adjustment mechanisms, cost control mechanisms, rewards for superior performance, and penalties for subpar performance. Confirms that the Public Utilities Commission may adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives. Requires the Commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if the Commission resets an electric utility's allowed revenues based on consideration of the utility's costs. Effective 7/1/2050. (SD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
|
THE SENATE |
S.B. NO. |
2487 |
|
THIRTY-THIRD LEGISLATURE, 2026 |
|
|
|
STATE OF HAWAII |
|
|
|
|
|
|
|
|
||
|
|
||
A BILL FOR AN ACT
relating to the public utilities commission.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
Act 5 directed the public utilities commission to establish a performance-based model for utility regulation and ratemaking based on performance incentives that "directly tie an electric [utility's] revenues to that utility's achievement on performance metrics and break the direct link between allowed revenues and investment levels." The intent of this performance-based model was to depart from the traditional cost‑of-service model that rewards utilities for increasing the utility's capital expenditures and bases allowed revenues on the value of the rate base, irrespective of the utility's performance. The legislature recognized that the traditional model misaligned the interests of customers and utilities because it created a possible bias toward utilities that expended capital on utility-owned projects, rather than utilities that supported more efficient or cost-effective options like customer-owned distributed energy resources or independent, third-party projects. The legislature concluded that the State needed a shift away from the traditional focus on utility costs to a more modern focus on performance.
The legislature further finds that, in response to the Hawaii Ratepayer Protection Act, the public utilities commission opened its performance-based regulation proceeding as a historic, multi-phase process that included participation from local and national experts. In December 2020, the commission established a comprehensive framework for performance-based regulation that has since been nationally recognized as a leading model. The guiding principles for this framework include a customer-centric approach, including day-one savings for customers; administrative efficiency through a simplified regulatory framework; and utility financial integrity with the opportunity to earn profits and rewards through performance. The main features of the framework include a multi-year rate period of five years, during which the utility's allowed revenues are determined not by traditional rate cases but by an objective index tied to general inflation. The utility's profits are driven largely by its ability to capture cost savings and efficiencies. The framework also includes performance incentive mechanisms to reward or penalize a utility based on its performance on public interest priorities like reliability, accelerated progress toward renewable energy, and improved customer service. The commission emphasized that, with the transition away from traditional cost-of-service regulation, customers would benefit from lower utility costs.
In establishing the performance-based framework, the public utilities commission recognized the need for a transformative and lasting shift away from cost-of-service regulation. The commission made clear that, after the five-year rate control period, the commission anticipated continuing to refine the performance-based framework and did not envision returning to cost-of-service regulation. However, now that the end of the rate control period is approaching, the legislature is concerned about the integrity of the performance-based framework and the commission's compliance with the Hawaii Ratepayer Protection Act. For example, last year, the commission adopted the utility's proposal to initiate a traditional, cost-of-service rate to "re-base" the utility's allowed revenues using its projected increased costs. This cost-based rebasing of revenues backtracks on the progress and reforms the State has made and violates the commission's previous commitment not to return to cost-of-service regulation.
The legislature is also aware that the public utilities commission has insisted on requiring a "forward test year" approach to the rate case, in which a utility requests a rate increase based on future cost projections, rather than the historical cost trends that have been controlled under the performance-based framework. This return to forecasted cost‑of‑service ratemaking encourages utilities to make "wish lists" of capital projects to boost utility profits, thereby inflating customer rates. However, the predominant practice in rate cases is to use historical costs adjusted for known and measurable changes, rather than forecasted future costs, as the basis for regulatory rate analyses. Jurisdictions using forecasted costs instead of historical costs end up paying substantially higher rates.
The legislature recognizes that the public utilities commission has expressed the commission's belief that it is constrained by existing legal provisions to follow certain traditional cost-bound methods, notwithstanding the mandates of the Hawaii Ratepayer Protection Act. As a result, the commission is inviting a return to "cost-plus" ratemaking that threatens to undermine the benefits and progress achieved under the performance-based framework. This poses the risk of significant rate increases for customers.
Based on this stance by the public utilities commission, and the risk of rate increases for customers, the legislature believes that further clarification and guidance are needed to ensure that the commission upholds the legislature's original intent under the Hawaii Ratepayer Protection Act and continues the progress made under the commission's performance-based regulatory framework. These clarifications will help ensure that both electric utilities and ratepayers will continue to benefit from the utilities' improved performance, lower costs, and lower rates.
Accordingly, the purpose of this Act is to provide clarification and guidance by:
(2) Confirming that the public utilities commission may adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives that fulfill the requirements of section 269-16.1, Hawaii Revised Statutes; and
(3) Requiring the commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if resetting an electric utility's allowed revenues based on consideration of the utility's costs.
SECTION 2. This Act shall be known and may be cited as the Hawaii Ratepayer Protection Act of 2026.
SECTION 3. Section 269-16.1, Hawaii Revised Statutes, is amended to read as follows:
"§269-16.1
[Performance incentive
and penalty mechanisms] Performance-based
incentives; regulation of electric utility rates. (a)
On or before January 1, [2020,] 2027, the public utilities
commission shall establish [performance] performance‑based
incentives, including revenue adjustment mechanisms, cost control
mechanisms, and reward and penalty mechanisms, that directly tie an
electric [[]utility's[]] revenues to that utility's [achievement
on] performance [metrics] and break the direct link between allowed
revenues and investment levels. The [performance]
performance-based incentives [and penalty mechanisms], as may be
amended by the public utilities commission from time to time, shall apply to
the regulation of electric utility rates under [section 269-16.] this
chapter.
(b) Notwithstanding any law to the contrary, including the ratemaking procedures described in section 269-16, the public utilities commission may adopt, by commission order, alternative ratemaking procedures to establish electric utility rates and performance-based incentives for purposes of subsection (a); provided that the rates shall be derived from a performance‑based model for determining utility revenues.
(c) If resetting an electric utility's allowed revenues based on consideration of the utility's costs, the commission shall apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs, rather than relying on a forward test period.
[(b)]
(d) In developing [performance
incentive and penalty mechanisms,] performance-based incentives, the
public utilities commission's review of electric utility performance shall
consider[, but not be limited to,] the [following]:
(1) [The economic] Economic
incentives and cost-recovery mechanisms described in section 269-6(e);
(2) Volatility and affordability of electric rates and customer electric bills;
(3) [Electric service
reliability;] Reliability of electric service;
(4) [Customer] Level
of customer engagement and satisfaction, including customer options for
managing electricity costs;
(5) [Access to] Accessibility
of utility system information, including [but not limited to public
access to] electric system planning data [and], aggregated
customer energy use data [and individual access to], and granular
information about an individual customer's own energy use data;
(6) Rapid integration of renewable energy sources, including quality interconnection of customer-sited resources; and
(7) Timely execution of competitive procurement, third‑party interconnection, and other business processes.
[(c)]
(e) This section shall not apply
to a member-owned cooperative electric utility."
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect upon its approval.
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INTRODUCED BY: |
_____________________________ |
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Report Title:
PUC; Ratemaking; Performance-Based Incentives; Hawaii Ratepayer Protection Act
Description:
Clarifies that, for electric utilities, "performance-based incentives" include revenue adjustment mechanisms, cost control mechanisms, rewards for superior performance, and penalties for subpar performance. Confirms that the Public Utilities Commission may adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives. Requires the Commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if the Commission resets an electric utility's allowed revenues based on consideration of the utility's costs.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
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Date
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Status
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|---|---|
| Jun 5, 2026 | Act 093, on 06/05/2026 (Gov. Msg. No. 1193). |
| Jun 5, 2026 | Act 093, 06/05/2026 (Gov. Msg. No. 1193). |
| May 8, 2026 | Enrolled to Governor. |
| May 8, 2026 | Received notice of passage on Final Reading in House (Hse. Com. No. 888). |
| May 6, 2026 | Received notice of Final Reading (Sen. Com. No. 816). |
| May 6, 2026 | Passed Final Reading as amended in CD 1 with none voting aye with reservations; none voting no (0) and none excused (0). |
| May 6, 2026 | Passed Final Reading, as amended (CD 1). Ayes, 25; Aye(s) with reservations: none . 0 No(es): none. 0 Excused: none. |
| May 1, 2026 | Forty-eight (48) hours notice Wednesday, 05-06-26. |
| May 1, 2026 | Reported from Conference Committee (Conf Com. Rep. No. 184-26) as amended in (CD 1). |
| May 1, 2026 | 48 Hrs. Notice (as amended CD 1) 05-06-26. |
| May 1, 2026 | Reported from Conference Committee as amended CD 1 (Conf. Com. Rep. No. 184-26). |
| May 1, 2026 | The Conference Committee recommends that the measure be Passed, with Amendments. The votes were as follows: 4 Ayes: Representative(s) Lowen, Matayoshi, Perruso, Matsumoto; Ayes with reservations: none; 0 Noes: none; and 0 Excused: none. |
| May 1, 2026 | The Conference committee recommends that the measure be PASSED, WITH AMENDMENTS. The votes of the Senate Conference Managers were as follows: 4 Aye(s): Senator(s) Keohokalole, Wakai, Inouye, Awa; Aye(s) with reservations: none ; 0 No(es): none; and 1 Excused: Senator(s) McKelvey. |
| Apr 30, 2026 | Conference committee meeting to reconvene on 05-01-26 2:30PM; Conference Room 224. |
| Apr 29, 2026 | Conference committee meeting to reconvene on 04-30-26 2:40PM; Conference Room 224. |
| Apr 28, 2026 | Conference committee meeting to reconvene on 04-29-26 2:40PM; CR 224. |
| Apr 27, 2026 | Conference committee meeting to reconvene on 04-28-26 2:40PM; Conference Room 224. |
| Apr 24, 2026 | Conference committee meeting to reconvene on 04-27-26 2:40PM; CR 224. |
| Apr 23, 2026 | Received notice of Senate conferees (Sen. Com. No. 740). |
| Apr 23, 2026 | Conference committee meeting scheduled for 04-24-26 3:30PM; Conference Room 224. |
| Apr 23, 2026 | Senate Conferees Appointed: Keohokalole Chair; Wakai, Inouye Co-Chairs; McKelvey, Awa. |
| Apr 20, 2026 | Received notice of appointment of House conferees (Hse. Com. No. 787). |
| Apr 20, 2026 | House Conferees Appointed: Lowen, Matayoshi, Perruso Co-Chairs; Matsumoto. |
| Apr 20, 2026 | Re-referred to EEP, CPC, FIN, referral sheet 30 |
| Apr 16, 2026 | Received notice of disagreement (Sen. Com. No. 710). |
| Apr 16, 2026 | Senate disagrees with House amendments. |
| Apr 16, 2026 | Received from House (Hse. Com. No. 665). |
| Apr 14, 2026 | Passed Third Reading with Representative(s) Shimizu voting aye with reservations; none voting no (0) and Representative(s) Quinlan excused (1). Transmitted to Senate. |
| Apr 10, 2026 | Reported from CPC (Stand. Com. Rep. No. 2123-26), recommending passage on Third Reading. |
| Apr 7, 2026 | The committee on CPC recommend that the measure be PASSED, UNAMENDED. The votes were as follows: 10 Ayes: Representative(s) Matayoshi, Grandinetti, Chun, Ilagan, Ichiyama, Iwamoto, Lowen, Marten, Tam, Pierick; Ayes with reservations: none; 1 Noes: Representative(s) Kong; and Excused: none. |
| Apr 2, 2026 | Bill scheduled to be heard by CPC on Tuesday, 04-07-26 2:05PM in House conference room 329 VIA VIDEOCONFERENCE. |
| Mar 24, 2026 | Passed Second Reading as amended in HD 1 and referred to the committee(s) on CPC with none voting aye with reservations; none voting no (0) and Representative(s) Garrett, Quinlan excused (2). |
| Mar 24, 2026 | Reported from EEP (Stand. Com. Rep. No. 1379-26) as amended in HD 1, recommending passage on Second Reading and referral to CPC. |
| Mar 19, 2026 | The committee on EEP recommend that the measure be PASSED, WITH AMENDMENTS. The votes were as follows: 6 Ayes: Representative(s) Lowen, Perruso, Chun, Kahaloa, Kusch, Matsumoto; Ayes with reservations: none; Noes: none; and 1 Excused: Representative(s) Quinlan. |
| Mar 16, 2026 | Bill scheduled to be heard by EEP on Thursday, 03-19-26 9:40AM in House conference room 325 VIA VIDEOCONFERENCE. |
| Mar 10, 2026 | Referred to EEP, CPC, referral sheet 16 |
| Mar 10, 2026 | Pass First Reading |
| Mar 6, 2026 | Received from Senate (Sen. Com. No. 56) in amended form (SD 1). |
| Mar 6, 2026 | Report Adopted; Passed Third Reading. Ayes, 24; Aye(s) with reservations: none. Noes, 0 (none). Excused, 1 (Senator(s) Ihara). Transmitted to House. |
| Mar 5, 2026 | One Day Notice 03-06-26. |
| Mar 5, 2026 | Reported from WAM (Stand. Com. Rep. No. 2861) with recommendation of passage on Third Reading. |
| Mar 3, 2026 | The committee(s) on WAM recommend(s) that the measure be PASSED, UNAMENDED. The votes in WAM were as follows: 12 Aye(s): Senator(s) Dela Cruz, Moriwaki, DeCoite, Elefante, Hashimoto, Inouye, Kanuha, Kidani, Kim, Lee, C., Richards, Wakai; Aye(s) with reservations: none ; 0 No(es): none; and 1 Excused: Senator(s) Fevella. |
| Feb 27, 2026 | The committee(s) on WAM will hold a public decision making on 03-03-26 10:17AM; Conference Room 211 & Videoconference. |
| Feb 13, 2026 | Report adopted; Passed Second Reading, as amended (SD 1) and referred to WAM. |
| Feb 13, 2026 | Reported from CPN/EIG (Stand. Com. Rep. No. 2258) with recommendation of passage on Second Reading, as amended (SD 1) and referral to WAM. |
| Feb 4, 2026 | The committee(s) on CPN recommend(s) that the measure be PASSED, WITH AMENDMENTS. The votes in CPN were as follows: 5 Aye(s): Senator(s) Keohokalole, Fukunaga, Lamosao, McKelvey, Awa; Aye(s) with reservations: none ; 0 No(es): none; and 0 Excused: none. |
| Feb 4, 2026 | The committee(s) on EIG recommend(s) that the measure be PASSED, WITH AMENDMENTS. The votes in EIG were as follows: 5 Aye(s): Senator(s) Wakai, Chang, DeCoite, Richards, Fevella; Aye(s) with reservations: none ; 0 No(es): none; and 0 Excused: none. |
| Jan 30, 2026 | The committee(s) on CPN/EIG has scheduled a public hearing on 02-04-26 9:30AM; CR CR229 & Videoconference. |
| Jan 30, 2026 | The committee(s) on CPN/EIG has scheduled a public hearing on 02-04-26 9:30AM; Conference Room 229 & Videoconference. |
| Jan 28, 2026 | Referred to CPN/EIG, WAM. |
| Jan 22, 2026 | Passed First Reading. |
| Jan 22, 2026 | Introduced. |
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Date
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Description
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Location
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Votes
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|---|---|---|---|---|
| May 6, 2026 | Final Reading | House Floor |
Passed |
|
| May 6, 2026 | Final Reading | Senate Floor |
Passed |
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| Apr 14, 2026 | Third Reading | House Floor |
Passed |
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| Apr 7, 2026 | The committee on CPC recommend that the measure be PASSED, UNAMENDED | House Standing Committee on Consumer Protection & Commerce |
Passed |
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| Mar 19, 2026 | The committee on EEP recommend that the measure be PASSED, WITH AMENDMENTS | House Standing Committee on Energy & Environmental Protection |
Passed |
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| Mar 6, 2026 | Third Reading | Senate Floor |
Passed |
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| Mar 3, 2026 | The committee(s) on WAM recommend(s) that the measure be PASSED, UNAMENDED | Senate Standing Committee on Ways and Means |
Passed |
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| Feb 4, 2026 | The committee(s) on CPN recommend(s) that the measure be PASSED, WITH AMENDMENTS | Senate Standing Committee on Commerce and Consumer Protection |
Passed |
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| Feb 4, 2026 | The committee(s) on EIG recommend(s) that the measure be PASSED, WITH AMENDMENTS | Senate Standing Committee on Energy and Intergovernmental Affairs |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
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Organization
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Position
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Date
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|---|---|---|
| Earthjustice | *** Support | Apr 7, 2026 |
| Earthjustice Mid-Pacific Office | *** Support | Apr 7, 2026 |
| Ulupono Initiative | *** Support | Apr 7, 2026 |
| Ulupono Initiative, Earthjustice, and Hawaii Clean Power Alliance | ** Support |
STAND. COM. REP. NO. 2861
Honolulu, Hawaii
RE: S.B. No. 2487
S.D. 1
Honorable Ronald D. Kouchi
President of the Senate
Thirty-Third State Legislature
Regular Session of 2026
State of Hawaii
Sir:
Your Committee on Ways and Means, to which was referred S.B. No. 2487, S.D. 1, entitled:
"A BILL FOR AN ACT RELATING TO THE PUBLIC UTILITIES COMMISSION,"
begs leave to report as follows:
The purpose and intent of this measure is to ensure that electric utility rates remain performance-based, rather than returning to cost-based ratemaking that could raise customer costs.
More specifically, this measure:
(1) Clarifies that, for electric utilities, "performance-based incentives" include revenue adjustment mechanisms, cost control mechanisms, rewards for superior performance, and penalties for subpar performance;
(2) Confirms that the Public Utilities Commission may adopt alternative ratemaking procedures to establish electric utility rates and performance-based incentives; and
(3) Requires the Commission to apply a presumption in favor of considering historical cost trends and external indices that reflect incentives to control costs if the Commission resets an electric utility's allowed revenues based on consideration of the utility's costs.
Your Committee received written comments in support of this measure from Earthjustice and Ulupono Initiative.
Your Committee received written comments on this measure from the Department of Commerce and Consumer Affairs Division of Consumer Advocacy, Public Utilities Commission, and Hawaiian Electric.
Your Committee finds that Act 5, Session Laws of Hawaii 2018, known as the Hawaii Ratepayer Protection Act, established a performance‑based framework to align electric utility incentives with the interests of customers by linking revenues to performance outcomes rather than capital expenditures. Your Committee also finds that recent actions by the Public Utilities Commission have raised concerns about a return to traditional cost-plus ratemaking, contrary to the intent of the Hawaii Ratepayer Protection Act. Your Committee further finds that this measure is intended to clarify the Legislature's intent regarding utility ratemaking methods and to provide additional guidance to support the consistent implementation of performance‑based regulation.
As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2487, S.D. 1, and recommends that it pass Third Reading.
Respectfully submitted on behalf of the members of the Committee on Ways and Means,
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________________________________ DONOVAN M. DELA CRUZ, Chair |
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STAND. COM. REP. NO. 2258
Honolulu, Hawaii
RE: S.B. No. 2487
S.D. 1
Honorable Ronald D. Kouchi
President of the Senate
Thirty-Third State Legislature
Regular Session of 2026
State of Hawaii
Sir:
Your Committees on Commerce and Consumer Protection and Energy and Intergovernmental Affairs, to which was referred S.B. No. 2487 entitled:
"A BILL FOR AN ACT RELATING TO THE PUBLIC UTILITIES COMMISSION,"
beg leave to report as follows:
The purpose and intent of this measure is to:
(1) Clarify the meaning of "performance-based incentives" in relation to the regulation of electric utility rates;
(2) Authorize the Public Utilities Commission to adopt alternative ratemaking procedures; and
(3) Require the Public Utilities Commission to apply a presumption to favor historical costs rather than projected costs when considering requests to re-base rates.
Your Committees received testimony in support of this measure from Ulupono Initiative, Earthjustice, and Hawaii Clean Power Alliance.
Your Committees received comments on this measure from the Public Utilities Commission, Department of Commerce and Consumer Affairs Division of Consumer Advocacy, and Hawaiian Electric.
Your Committees find that Act 5, Session Laws of Hawaii 2018 (Act 5), established a performance-based model for utility regulation and ratemaking for a five-year period, transitioning utility regulation in the State away from a traditional cost‑of‑service model. Your Committees further find that the Public Utilities Commission's February 2025 determination allowing electric utilities to re-base revenues using projected costs was a departure from the performance-based model and may lead to higher rates for consumers. This measure would reaffirm the basic principles of performance-based ratemaking and provide the Public Utilities Commission with the discretion to advance the original intent of Act 5 and ensure the performance-based model delivers efficiency and value for consumers.
Your Committees have amended this measure by:
(1) Inserting an effective date of July 1, 2050, to encourage further discussion; and
(2) Making technical, nonsubstantive amendments for the purposes of clarity and consistency.
As affirmed by the records of votes of the members of your Committees on Commerce and Consumer Protection and Energy and Intergovernmental Affairs that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 2487, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 2487, S.D. 1, and be referred to your Committee on Ways and Means.
Respectfully submitted on behalf of the members of the Committees on Commerce and Consumer Protection and Energy and Intergovernmental Affairs,
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________________________________ GLENN WAKAI, Chair |
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________________________________ JARRETT KEOHOKALOLE, Chair |
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Date
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Testimony PDF
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|---|---|
| Apr 7, 2026 | SB2487_HD1_TESTIMONY_CPC_04-07-26_.PDF |
| Mar 19, 2026 | SB2487_SD1_TESTIMONY_EEP_03-19-26_.PDF |
| Mar 3, 2026 | SB2487_SD1_TESTIMONY_WAM_03-03-26_.PDF |
| Feb 4, 2026 | SB2487_TESTIMONY_CPN-EIG_02-04-26_.PDF |
Discussed in Hearing
1MIN
Conference Committee
1MIN
Conference Committee
1MIN
Conference Committee
1MIN
Conference Committee
1MIN
Conference Committee
28MIN
House Standing Committee on Consumer Protection & Commerce
1MIN
House Standing Committee on Consumer Protection & Commerce
11MIN
House Standing Committee on Energy & Environmental Protection
Bill Author
Bill Co-Author(s):
