Senate Standing Committee on Commerce and Consumer Protection

Aloha and welcome to the Hawaii State Senate Committee on Commerce and Consumer Protection. I'm Senator Jarrett Keohokalole, Chair of the Senate Commerce and Consumer Protection Committee. We're here for today's Tuesday, June 249:30am Informational briefing in the Hawaii State Senate Room 229.

We have a number of Members who will be joining us shortly, but I'm going to allow the other Members at the table to introduce themselves. Vice Chair Carol Fukunaga, Senate District Senator Tim Richards, District 4 from the Big Island, Glenn Wcott, Chair of the Energy Committee.

The purpose of this briefing is to receive background information and updates on the Public Utilities Commission's performance based regulation framework, including its impact on electric utilities and ratepayers. In addition, we will hear a presentation, well, an update from the Director of the Department of Commerce and Consumer affairs regarding the their agency's whistleblower complaint process.

Following the briefings, there will be an opportunity for Members, Senate Members to ask questions. We have two other Members who have joined us at the table. If you'd like to introduce yourself, Senator. Oah, thank you. Glenn. Oh, I'm sorry, I'm the tall one on the table here. Senator Angus McKelvey, Lahaina, Maui.

As this is a informational briefing, public testimony and questions will not be accepted, but briefing materials will be made available through the link provided in the meeting notice. This meeting is being streamed live on YouTube and in the unlikely event we experience technical difficulties that require us to end abruptly.

Abruptly, we will reconvene later to address any unfinished business and a public notice will be posted on the Legislature's website with further details. Okay, so first up, we will have the Ulupono Initiative give us background on pbr. Thank you for joining us.

Morning Chair, Vice Chair, Members of the various committees. My name is Michael Colon. I'm the Energy Sector Director at Ulupono Initiative. Also being joined by my President, Marie Clay. So thank you for having us. You know, right off the bat, you know, Ulupono was asked to present at a high level on PBR performance-based ratemaking.

I just wanted to mention, you know, this presentation that we're doing here is meant for informational purposes and not really intended to represent Ulupona's position on performance based rate making. However, towards the end we do can't help ourselves.

We've got a little bit of advocacy and I'll make sure to identify where we kind of cross into that point. So next slide please. One after.

If you could speak up a little bit or maybe we'll move the mic up. Sure Y.

Okay. My apologies.

Is that better?

Next slide please. Okay, so starting with why do we regulate electric utilities? And really this goes back to the origins of the technology of electricity. Back when electricity was starting to be developed and deployed to various customers. It was growing at a accelerated rate.

And you know, it didn't make sense to have multiple companies delivering power, creating lines, building infrastructure to deliver to the various customers. Therefore, it really made sense to just have one company deliver that power. And so the concept of a natural monopoly, a regulated monopoly came about.

So the company would be allowed to provide power to customers in exchange for the government monitoring, mandating and controlling their rates that they could charge their customers to protect consumers from overcharging customers and market competition. In exchange, also with this regulatory compact, they utilities would have an obligation to serve all customers.

So building upon that next slide please. The construct of this monopoly power, the way the utilities make money is also different than what a normal business would do. And it should say the monopoly. At least here in Hawaii right now, Hawaiian Electric is the entity that we're talking about.

They have a monopoly on transmission and distribution, the wires. However, they do not have a monopoly on generation. As you all know, there's independent power producers who also provide power and cell power to the utility as a pass through cost to customers. HECO does have their own generation, but it's kind of mixed. So.

So with that being said, you know, the public utilities do make money differently than normal businesses. They have the ability to make money based on the investments that they make in capital. You know, utility can make an investment on anything they want.

However, if they want to charge customers for it and get a rate of return on it, they have to get that approved through the Commission. And the Commission evaluates those expenses and make sure that they're prudent, used and useful. And the utilities also allowed to recover for operating expenses, you know, staffing and the like.

But they make the money on the capital investments and the financial return that the utilities make is made to compensate on the financing costs of the capital. Next slide. So the way utility seeks to increase their rates to customers is called, goes through a rate case process and usually it's periodic.

So over time, you know, the utility will operate under its existing rates and then as expenses go up, as more investments are needed, they will come in and seek a rate increase. That rate increase increase request is called a rate case. Those rates are determined in a quasi legal process through the Commission. Public Utilities Commission.

The utilities will file an advocate on behalf of their shareholders, consumer advocate advocates for consumers and rates. And then the PUC is required to determine the correct balance that is fair to both. We'll get into this a little bit more later.

But in the rate case here in Hawaii and Hawaiian Electric's state, they use a, what's called a forward looking test year. So they'll look forward to the an oncoming year and figure out what their expenses and their investments will be and then request a rate increase that's to accommodate those investments. Next slide please.

So built into this framework, you know, this growth mindset that the regulatory regime had for building out infrastructure, it's called a capital bias.

It's designed and intentional to incentivize the electric utilities to build out that infrastructure to meet growing demand, kind of that historical growth and enable the utility, incentivize the utility to make that infrastructure to build out and build that grid to what it, what it needed to be to meet all customers demands.

So again, utilities can get their operating expenses reimbursed, but they make their money on the financial return on the investments made in capital. And therefore there is somewhat of a tendency or potential risk that the utility will overspend and over invest. And that's where the public utilities role as a regulator comes in to moderate that.

They act as the natural market force that an open market would have on a company without that constraint. The Public Utilities Commission plays that role as the kind of government version of the market force. Next slide. So the market's changed. It's been over 100 years under this regulatory regime. The energy market is different now.

We have more competition, we have technologies changing and new business models are springing up. And we also have strong policy initiatives. The state has a aggressive renewable portfolio standard. And in line with all that, it became clear that we wanted to incentivize the utility to operate more aggressively along those policy goals.

So that's where we adopted performance based rate making and that's, you know, designed to incentivize performance, efficiency, cost control, all the things that we want the utility to do, to prioritize those and reorient the utility away from that capital bias and more towards performance of those goals that we all collectively agree is important to us. Next slide.

So we passed what became 269161 and just to kind of quote directly from the law, you know, we wanted to establish performance incentives 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.

So that were that that phrase break the direct link is meant as a counter to the observation that if you want to make more money, an investor owned utility, you just invest more money. Right? We want to make them perform better to make more. And that's what the concept and idea behind performance based rate making is.

Next slide. So coming out of the passage of the PBR law, the Puc, Hawaiian Electric consumer advocate and interveners worked to develop a construct to implement performance based rate making. Pbr Prior to the passage of pbr, Hawaiian Electric was in a annual rate case on a rotating basis. It wasn't really designed for that.

It's administratively burdensome, resource taxing and kind of emblematic of the changing policy landscape that the utility was dealing with. They needed to come in and regularly address the dynamic nature of the business. So the parties in this PBR docket created this construct to have a five year period between rate cases.

But now it's going to be called rebasing. That's the action of going back and getting your rates adjusted. This period is called MRP Multi year rate Plan. They settled on five years as a holdout. So imagine you have a budget established for your five years, kind of like the state has a biennium budget, five year budget.

And so this slide's trying to kind of visualize and show how the various financial mechanisms come to play in this MRP multi year rate period. So in year one you have the initiation of the multi rate plan. And then every year you have something called an annual adjustment, annual revenue adjustment.

And that's intended to handle fixed modest increases in the in between years. So for example, think like inflation. The utility is allowed to charge increase the rates under the ARA to accommodate those fixed modest increases in costs within a dead band.

If you had a large project, however, you're not able to use the ara, the annual revenue adjustment, for that. It's not designed for that. If you want to make bigger expenditures, then you need to use what's called a large project recovery mechanism. It's been called a bunch of different things over the years.

I think right now it's an eprm, but it's really intended to be for big projects that the utility needs to invest in over a certain dollar threshold and it triggers a full docket process.

So the Commission will open a docket, there will be the consumer advocate and potentially other intervenors and they'll look at the prudence of the proposed investments and determine whether or not they can increase rates as a result of that investment.

It's meant to be kind of one off, very limited use case and not, not intended to be used very frequently. Otherwise the utility will have to wait or not make that investment. Okay, and then overarching this multi rate plan is the performance incentive mechanism. Those are the, and we'll get further into what those are.

But those are the incentives and rewards and penalties for utility performance. And the utility can achieve those in any given year during that mrp. Next slide. So the pims, the performance incentive mechanisms, there's just a few here. There's a lot more. They really are the crux of performance based rate making.

They're the things that incentivize and trigger the utility to perform. We have a few here listed. We have something called rpsa. It's designed to incentivize the utility to accelerate the achievement of the renewable portfolio standard in a given year.

So if you were to take RPS all the way to 100 and then you have those different year benchmarks, if you were to turn it into an annualized one, if HECO beats the target for that year, then they get a financial reward. Similarly, the interconnection pimp, they bring on renewable energy projects quicker.

They will Reserve, receive a financial benefit reliability, a big one. And this one actually precedes pbr. If they achieve certain service reliability benchmarks, they receive a financial award. However, if they miss those targets, they get a penalty and then a shared savings mechanism.

If utility successfully brings in a lot of low cost renewable projects, utility and the ratepayer customers will share the savings on through that shared savings mechanism. Next slide please. So right now in the performance based rate making docket, we're at a place where we're going into one of these new rebasing periods, going into a new rate case.

Essentially, Hawaiian Electric requested and received approval for a cost of service forward looking test year rate case.

We can talk a little bit more about the value and benefits of forward looking versus historical test years and why it's maybe important to think about how those things work together because they'll play into how we proceed in this rebasing process.

So what we've done traditionally in Hawaii is the forward looking test year is designed to accommodate change in policy change and dynamics, change in needs. That's been said past is not prologue.

And so being able to accommodate a changing environment, you want to be able to forecast and look forward and figure out what your expenses will be and raise rates accordingly. Criticism of that is that it's not bounded by actual results and there could be a tendency to pad your budgets and overinflate because, you know, businesses are businesses.

They want to make sure they have this big enough budget to accommodate whatever, you know, circumstances may come about. Contrast that with a historical test here, which looks at actual expenditures and actual expenses and, you know, is bounded by cost control and prudence review from the Commission.

However, you know, it may not accommodate new needs and new requirements by the utility. So ideally we should be able to kind of enable both. Next slide. You know, the benefit of a historical test year would be to have more efficiency, more cost control, forecasted test year, more flexibility for new initiatives and policy.

And this is what is kind of being discussed currently. So this is open discussion within the PBR docket with the parties and the Commission, how to build in some of the efficiencies of looking backwards while enabling flexibility of potentially forecasting for needs going forward. So right now, what's being proposed and discussed is this kind of hybrid approach where you look forward.

Obviously there's a forecasted test here, but grounding those forecasts to actual past results if possible, unless there's a reason to deviate, and then leveraging mechanistic approach where costs that are historic, that don't have a lot of deviation, would just continue going forward, you know, based on those historical trends.

The idea is to try and figure out how to build in more efficiency and cost control into the process. But again, this is still being evaluated. No decision has been made right now as how to deal with that process. Okay, thanks a lot. So we're crossing into advocacy territory now.

So, you know, in part of this evaluation, Lupono believes that the PIM rewards pim. Thank you for the disclosure. Yes, we can hard stop. Yes, you can.

Everyone can recognize, right?

Yes, yes. And so, you know, this is Ulupono's position. But, you know, the PIMs, the performance incentive mechanisms, are the crux of PBR. And if you were to look at this slide here on the left, 2021 was the year that Hawaiian Electric achieved the highest total pim.

So all the various mechanisms, rewards, penalties, came to a little under $4 million as compared to over $1.0 billion in net revenues, which is just a little over 0.13% of equity. On the right, we're proposing, we would like to see these mechanisms mean more to the utility.

So we're proposing should be something like 2% of ROE, which again, is still a very small slice of the pie, but would be, we would argue, more meaningful to the utility to really chase after these mechanism these incentives so that they can do the things that, you know, we all agree are very important.

So this is to try and really more closely bring in line this intent of the Bill to, to align with performance and outcomes. And, you know, what are these, what would this money do? It's to bring on renewable energy more fast, is to encourage cost control and it's to encourage, you know, savings through accelerated infrastructure.

Utility enabling renewable. Enabling infrastructure. And therefore it would bring down costs, we believe, because renewable energy is cheaper than oil. So the more you can bring on and the quicker you can do that, the more savings. And that savings would vastly outshine and outweigh the amount of performance incentives that the utility would get.

So everybody, we view that would be a positive for everybody if you can accelerate that. So with that, I'll get off the soapbox and thank you for your time and open any questions you may have.

Mr. Colon, Mr. Clay, thank you for agreeing to participate and help us out today. We will now ask the invite the PUC to come up and provide their presentation, followed by the dcca and then we'll take questions thereafter. Thank you.

Chair, good morning.

Thank you for joining us.

Thank you. Chair, Vice Chair, Members of the Committee, Senators, I'm Leo Asuncion, the Chair of the PUC, and with me today is Mark Kaetsu, our PUC Supervising Attorney, and also David Richman, our Government Affairs Officer.

Thank you for the opportunity to brief all of you on performance based regulation that was passed by the Legislature and enacted by then Governor Eagi in 2018 and the PUC began implementation of it in 2021 for a five year multi rate plan. As Mr.

Colon has mentioned, we are also going to be providing you the status thus far as we head into the fifth year of that MRP. Before turning it over to Mr. Kaetsu, who is the docket lead for PBR. I must state that the PBR docket is an open active docket before the PUC.

And what we're reporting today to you is everything that's in the record as of today. Further, we want to ensure that ex parte communications do not take place as we have no knowledge if every party on the docket is either here in the room or even observing on YouTube. So we want to make that caveat.

So with that, I'll turn it over to Mr. Kajetsu to go over our slides with you and we'll be happy to field any questions on our presentation and the docket record to date at the appropriate time.

Mark. Thank you Chair Asuncian, Members of the Committee, thank you for this opportunity to present this morning. Just to give a brief roadmap today, our presentation is going to cover broadly, what is PBR development of PBR in Hawaii, our current PBR framework and our ongoing evaluation. And I understand that Mr.

Colon's presentation covered some of these themes, so I'll kind of rush through them so as not to waste your time. So first, what is performance based regulation? Again, just to give you a quick overview. As Mr. Colon indicated, cost of service regulation is the predominant model, at least in America, for regulating utilities. It's cost based.

The Public Utilities Commission looks at what it costs to produce electrical service that determines the rates. There's a formula and things like that, but I don't think we have to get into that. PBR offers an alternative to cost of service regulation. It orients the utility more towards performance. It also is more flexible and dynamic.

It can create greater accountability for cost management. It can also create specific mechanisms geared to achieve more discrete policy objectives. So turning to how we developed PBR in Hawaii, as Chair Sension mentioned, we have begun this docket in 2018 we're currently in the fifth phase.

So this is just a quick overview, but it's been a very heavy, intensive collaborative process with a large and diverse group of stakeholders. We've taken great pains to document and solicit input from everybody and proceed as an organized manner as we can.

So generally phase one, which was from 2018 to 2019, we brought together stakeholders in informal facilitated collaborative process to identify what were the goals and outcomes we wanted PBR in Hawaii to achieve and what were some potential mechanisms that we could consider to accomplish that.

Phase two then ran from approximately 2019 to 2020, and there that took on a more formal contested case like proceeding, where there are opportunities to submit testimony, discovery. We had a evidentiary hearing, there was briefing.

All this culminated into the specific mechanisms that were adopted into our initial PBR framework, which were reflected in our decision in order 37507 in December. I'll touch on a bit later what they encompass, but generally speaking, they are a portfolio of revenue adjustment mechanisms, performance mechanisms and some safeguards.

Briefly, there was what we call phase 2.5, roughly from 2020 to 2021. This was to address some additional matters. So in addition to performance mechanisms, we have things called scorecards and reported metrics. Those are just ways to track utility performance in specific areas to make sure that they're making progress towards desired outcomes.

And if they're not, you know, that kind of gives a red flag that maybe we should focus on them. We also attempted to streamline some reporting requirements, things like that, just to make things more efficient for the utility. Beginning in 2021 through 2022, we entered phase three.

In this phase, we looked at developing additional PIMs based on concerns the Commissions had.

Specifically, the areas of concern we raised were grid resiliency, timely retirement of our fossil electric's fossil fuel units, delays in interconnecting large scale renewable energy facilities, cost control for fossil fuel and purchased power, which are two major drivers of monthly bills as well as better utilization of DERs.

These ultimately resulted in three new PIMs and two new reports from Hawaiian Electricity. Phase four continued as a refinement of the PBR mechanisms. And just to kind of give you some context, it's not like we set this and forget it. This is an actively engaged process. We meet with the stakeholders probably at least quarterly, if not monthly.

We're actively working with this to see if the mechanisms are working. If they're not working, how can we improve them? So in 2022 through 2024, we took a look at a set of some of our initial performance incentive mechanisms, we decided that some should be allowed to sunset.

These include the Der Grid Services PIM, the Der Interconnection Approval PIM, the excuse me, that should be Advanced Metering Infrastructure Utilization PIM and a Low to moderate energy efficiency PIM. We also address proposals to modify certain PIMs.

And then we also had to make some modifications to some mechanisms in light of the Maui wildfires following August 2023 to make sure that that unforeseen event didn't cause inadvertent consequences. At the time we did pvr, we didn't foresee an event like that. So some of the mechanisms may have inadvertently been triggered.

We wanted to avoid that happening. So that was a quick brush through how we got to PBR framework. So this is just a quick overview of what PBR is. In Hawaii currently, we have three overarching guiding principles.

A customer centric approach, focusing on the customer administrative efficiency, trying to help the Commission utility, and then utility financial integrity, ensuring that none of this results in any unreasonable deleterious effects to the utility's financial well being. You can also see that there are a number of outcomes that flow from this.

So you can see affordability, reliability, interconnection experience, customer engagement, cost control, Der asset effectiveness, grid investment, efficiency, capital formation, customer equity, greenhouse gas reduction, electrification of transportation, and resilience are all various outcomes that in some form we hope the PBR framework can encourage. So our framework is made up of these items.

So the revenue adjustment mechanisms are sort of what address the utility's core business operational costs. So if I could take a step back and maybe make an illustration. Imagine a parent's relationship with their child. And one relationship, the parent pays for the expenses of the child.

The child says, I have a field trip this week, I need this much money, or I want to go see some movie with some friends or things like that, the parent will give them the amount of money to cover that expense. That could very loosely be analogized to kind of the cost of service regulation paradigm.

You're looking at the costs of what needs to be done. With PBR, it's more like a parent providing allowance to their child and saying, this is supposed to cover what you're supposed to do during a fixed period of time, a week, a month, whatever the period is. If you spend.

If you don't spend all of it, you get to keep the extra. If you spend too much of it and you run out, that's too bad, you have to kind of eat that difference. That's a very, very High level unsophisticated analogy. But just to try to give you some context for where we're going.

So with that in mind. So these revenue adjustment mechanisms are kind of like that allowance. So you've got a five year multi year rate plan. And during that, that means the utility will not seek a General rate increase in that five years. So during that time revenues will be adjusted by three other items.

One is this uluponal I'm referred to as the annual revenue adjustment mechanism. Basically that helps break the link between investment and rates because essentially the rates aren't going up because of cost of service. Rates are now being adjusted by external indices. In this case it's largely GDPI to accommodate for inflation.

So every year there's an inflation adjustment to help keep pace with rising costs that are caused by that as well as a few other components. Primarily there's what we call the customer dividend. Remember one of our principles was a customer centric approach.

The customer dividend provides a certain amount of money that is basically deducted from the utility's revenue every year. That's supposed to offer a discount to customers. So even if the rate may go up because say inflation is really high, that that increase will be offset by the customer dividend.

To help balance that out, there's also something called the Z factor which is intended to address exogenous events. So if something completely unexpected happens, for example, in 2017 the federal Congress changed the tax code. It changed how certain utility accounts were booked. That was something that was unforeseen.

Similarly, we found that the COVID 19 pandemic was an exogenous event that no one could have foreseen and was beyond the utilities control. The utility incurred certain costs under COVID 19. For example, we told them not to disconnect any customers. They didn't. They absorb costs.

As a result, we allowed them to recover that through the Z factor because it was sort of a non performance based thing. It's the sort of active.event that happens. The exceptional project recovery mechanism is intended for extraordinary projects that can't really be covered by the annual revenue adjustment.

So the annual revenue adjustment is like an incremental increase annually based on primarily inflation. But you do have major projects that come in that the utility just doesn't have the liquidity to pay for, up to pay for and absorb. So the EPRM is designed to facilitate that.

So some examples for that are projects that help facilitate the integration of renewable resources. We've given EPRM relief for that. There was a large transmission distribution resilience project. The utility did. They got some federal grant money for that to help upgrade their transmission distribution infrastructure. We gave them EPRM relief for that as well.

That was another big bulky project that we felt was beneficial to the public and deserving of cost recovery if we get to. And revenue decoupling just refers to something that. Sorry, I'm taking a step back. So we started this DOC in 2018, but the Commission's actually been implementing what are considered PBR like mechanisms since 2010.

Revenue decoupling is one of them. The idea there is you're no longer tying rate to sales. The utility isn't really incentivized just to keep their. Their electric sales up. The idea is you, you'll have a rate case, you'll set a rate. We call that the target revenue that serves as sort of like a target.

And then the revenue balancing account will just track the amount of actual rates the utility collects if they over collect. The revenue balancing account represents a credit that gives is given back to customers every year. If the utility under collects from sales, that represents a deficit that the utility will recollect in an increase in rates.

But the idea is it. It breaks that link between the utility trying to focus on sales and is able to focus on technologies that might actually not be in their business interest, like facilitating DERs which actually reduce their sales, but is something as a policy objective we want the utility to support.

The performance mechanisms are kind of like additions. So going back to the analogy of a parent and their child, in addition to the allowance the parent might give the child opportunities to do chores, to make extra money, mow the lawn, wash the cars, paint the house, something like that.

Performance incentive mechanisms represent additional revenue opportunities that supplement that. So they're designed to support or promote the utility to focus on specific policy areas. And Mr. Colon exemplified some of them. The renewable portfolio PIM is intended to get the utility to focus on accelerating achieving RPS goals. We've had one that the Der interconnection approval. PIM was another.

There was a big backlog or a delay in getting Der systems interconnected. And when I say Der I mean residential solar facilities. We wanted to fix that. So we developed a performance incentive mechanism to get the utility to focus on decreasing the amount of time it took to process steps within their control.

That actually worked out quite well. The utility made some dramatic improvements in that area. We have others that are penalty instead of reward. So for example reliability. We consider reliable service a back service that utility provides.

If the utility fails to provide reliable service according to certain industry metrics, they can be penalized, and they have been penalized in the past. So those are examples of those performance mechanisms. On top of that, this pilot process is something that we wanted to include because of all the cost control incentives that PBR incorporates.

There is sort of a risk too, that the utility will just focus on containing costs and they're not going to explore some of the more innovative solutions. And we don't want to discourage that because Hawaii is so unique in many ways that you have to think outside the box.

There really is a limit to what you can draw from looking at other areas. So we don't want to discourage innovation. So the pilot process provides for an expedited process and a dedicated source of money the utility can use to explore pilots.

And then, depending on their success or success or just their performance, I suppose we can then decide with the utility and stakeholder if it's worth scaling them up to a major project. But it basically keeps that regulatory sandbox alive. The last are the safeguards. PBR means a lot of different things to a lot of jurisdictions.

PBR is like a toolbox, and the mechanisms are your tools. I would say Hawaii probably has the most tools in its toolbox of anywhere else. You see other elements in other jurisdictions. But just because of the unique nature of Hawaii, we're an island state. Each island is its own individual grid, and it's a vertically integrated utility.

It does generation, transmission and distribution. We wanted to make sure that, you know, things were going to be. We wanted to reassure, for example, investors that things weren't going to go off the rails.

We wanted to assure them that the Commission was keeping a firm hand on things and we weren't going to let anything go out of hand in either direction. So the earnings sharings mechanism, for example, is a safeguard for both customers and the utility.

If the utility starts to earn excessive amounts beyond what was expected, they have to start sharing some of those excess earnings. So customers would start to be credited off their Bill if the utility reaches a certain authorized return on equity.

Conversely, if the utility's return on equity starts to decline, perhaps because of some unexpected consequences of PBR, at a certain point, customers will start helping absorb some of those costs. Thankfully, the e-earning-surance mechanism has not been triggered to date, so it stayed within that that range.

And I think, generally speaking, our PBR framework has been fairly well received. I believe Point Electric actually received a credit rating upgrade after PBR was implemented. That, of course, was was impacted following the Maui wildfires and the reopener Provision is just a kind of ultimate backstop. You know, the Commission, as I said, we've monitored this very closely.

And at any time, if anything appears to be operating in a way that it isn't supposed to, we retain the discretion to investigate and examine whether that mechanism should be modified or terminated to prevent undesirable impacts. So, moving to PIMs, I just want to touch brief on an example. So this is a really busy slide.

I apologize for that. But the point here is. So we talked about the company's Der interconnection times. And so if you look at at this, really, here is kind of what we're looking at. You're looking at the days within the utilities control. So this is the three years before PBR went into effect.

You can see for Wine Electric, the time it takes to process steps within their control for Der interconnection applications hovers in the 20s. Helcos is in the 30s. Maui Electrics, it started in the 50s. It's trending in the right direction, but it's still Fairly high following PBR.

You can see now, as of 2024, we've made Juan Electric Horn Electric has made, you know, significant progress there. They've earned performance incentive awards. But also you can see that the days taken to execute the steps have dropped significantly.

10 and a half days on average for Hawaiian Electric, 13 days for Hawaiian Electric Light Company, and 15 days for Maui Electric. So that's an example, I think, of a successful PIM where you focus on a specific area and you can see there's performance. I do want to acknowledge that some didn't work out that way.

So I want to talk about the advanced metering infrastructure utilization PIM. Hawaiian Electric has been undergoing a grid modernization program. They've been installing advanced meters. You may have gotten a notice that one's being installed in your home or your property.

Anyway, as this rollout was occurring, we designed a PIM to try to get the utility to take advantage of more of the data that was coming from this. And so we designed this PIM and we ultimately wanted to use it to try to help empower customers and third parties and others just to use this data.

It did not really work. As you can see, hardly any. There are hardly any customers who would have been eligible to meet the performance metrics Wine electric needed in 2021, 22 and 2023, the three years that PIM was set to run. So in full disclosure, this is one that didn't work.

But we didn't necessarily consider that as a setback this is something that we're constantly working on. We always look for areas of improvement. And so we allowed this PIM to sunset and we took the information back with us.

And it's now something that stakeholders consider as we look how to make, how to avoid mistakes like this going forward. So currently where we are is what we call phase five. And this is where we're evaluating the PBR framework. As I noted earlier, the multi year rate period, that rate case stay up period is for five years.

So the big question is what happens after year five? So we decided that we would evaluate the framework in the fourth year of this five year period to determine what happens next. Generally speaking, the intention is to continue with this into a second multi year rate period that will begin in 2027.

This evaluation is ongoing and the purpose of it is to evaluate each of the mechanisms that we have. Are they working? Are they not working? Are the goals and outcomes of PBR being met? Are they not being met? Which ones, which ones aren't, which ones could be met better?

So this has been going on since about, let's see, we started in June of 2024. It's largely consistent of informal working group meetings that we've been facilitating. We've been basically collecting input from stakeholders on what about PBR, do they like, do they think needs improvement? What mechanisms specifically would they like to see improved?

And this is all to help facilitate and streamline what will be phase six, what will be a more formal proceeding where we'll look at modifications to specific PBR mechanisms to improve them ahead of the second MRP? And as Mr.

Colon mentioned, part of this has also included discussion on whether to rebase Hawaiian electorates rates before we go in to the second multi year rate period. So, and I'm wrapping up here, I know I've been talking long windedly, but so anyway, phase six is forthcoming. It'll be a more formal proceeding.

It builds off phase five and it will focus on examination of specific PBR mechanisms and proposals for how to improve them or to introduce new ones if people feel there are gaps that aren't being addressed. And I just want to touch briefly on the rebasing. So rebasing refers to, to again it's.

I apologize if I'm getting too wonky here because we've had revenue decoupling for so long. When we talk about rates, it's a little different. When you hear about rate increases on the mainland.

You our, our rate cases ever since we implemented decoupling in 2010, they establish a target Revenue and that's that number that, that sort of sets the revenue balancing account and that, and that then is adjusted by things like the gd, the inflation index and whether they make PIM awards or whether they're penalized for PIMs or things like that.

So the decision to rebase Hawaiian Electric's target revenues, as we've said in an order, this is filed in the public record. This is already done. I just want to send that back to the Commission. We appreciate the concerns that some parties might have about, you know, is this just going to be a rate case?

And I think two things to be cognizant of is this isn't intended to set a precedent for future PBR. I think what we looked at first and foremost was when we started PBR in 2021, we were coming out of what was a cost of service regulation rate case cycle.

The target revenue that came out of that wasn't intended for these longer stay out periods. Typically in a lot of rate cases you end up with settlements with parties and they're designed with sort of this idea that we'll be back again, revisit later.

So you know, because we have statutory deadlines for rate cases, we just need to kind of get it in this. So I think as we head into MRP2, we see this as an opportunity to help orient those target revenues to sort of really be more aligned with PBR.

You've got some legacy things that that could potentially be adjusted as a result. Also, the idea with these stay out periods is the cost control incentives are going to incentivize the utility to create operational efficiencies. They're going to get leaner, they're going to get meaner.

Rate pairs capture that when you rebase because otherwise the rates stay the same and even the utility gets better. You don't necessarily see those reflected in rates. The rates aren't ever revisited. So rebasing also offers an opportunity to check on these, all these operations and see are you actually capturing operational efficiencies.

And if you're not, well then that's also good information to have because that might mean other aspects of PBER need to be modified if they're not responding to them. And in terms of the process itself, I know rate case may have a triggering effect on some people, but that just refers to the process.

And in developing a process, the Commission needs to be really careful to balance all the various statutory statutes and rules that we have here. We want to be really mindful. Hrs 26916.1 instructed us to create performance incentive mechanisms.

But hrs 269.16 is still on the books and that does govern certain things that come with a proposed rate increase. Things like the opportunity for public hearings in all service areas, the opportunity for non party intervenors to participate.

You know, we want to make sure this proceeding is open to anybody who might be interested, not just PBR parties. And the last thing I'd just like to note, just building on Mr. Colon's comments about a forward looking test year versus a historical test year, I agree that that's a fertile area for discussion.

But again, sort of as the Commission, we feel bound sort of by the legal requirements we have and our rules currently prescribe us to use a forward looking test year, which is why again, we went with we, we kind of have to live at that's believe FOIA administrative rule 16601874.

You know, we're just trying to harmonize all of these different things. So we appreciate the positions folks take. You know where we sit. We have to kind of balance all of these considerations and try to come up with something that we think kind of honors all of these different factors equally.

And with that, I thank you very much for your time and happy to answer any questions you might have.

Thank you very much for that. Next up, we actually have the consumer advocate. I neglected to mention that earlier. So we will welcome them up to the table for their perspective on all of this. Good morning. Thank you for joining us. Thank you.

Morning. Chair, Vice Chair, Members of the Committee. My name is Michael Angelo. I'm the Executive Director of the Wide Division of Consumer Advocacy. I appreciate the opportunity to talk to you about performance based regulation this morning. Just to give you a brief overview, high level overview of what I'm going to be talking about.

I'll discuss DCA's role, division of Consumer Advocacy's role in advocating for consumers, provide a snapshot of where we were at on costs, talk a little bit about how scrutiny of costs and cost control under PBR, where we're at on that and how we're doing and whether we're talking about this process of rebasing target revenues.

I'll talk a little bit about, you know, some considerations in that and that fall into what's going to happen with the rebasing. So DCA, we represent utility customers before the Public Utilities Commission. Our role is to advocate for all customers of regulated public utility services. And our Advocacy looks at U.S. utility services delivered safely, reliably, affordably.

That includes cost effectiveness, Equitably and to achieve our clean energy and environmental goals, operate across a number of different sectors. Electricity, gas, water, wastewater, to a lesser extent, telecom and regulated transportation. So water carriers. An example would be young brothers and as well as motor carriers. But we don't typically get involved in motor carrier matters.

Our team consists of multidisciplinary professional expertise with accountants, attorneys, economists, engineers, scientists and many more. So just to give a snapshot of where we're at on costs, I want to make the point that cost control, regardless of any regulatory oversight model, always needs to be a priority. We always need to be looking at cost.

I know the analogy or metaphor of the child who has the allowance. We also want to make sure that that child was want to be know what the child's spending that allowance on and make sure that the allowance is being spent for things to better the child. That's the importance of cost.

I know I often say tongue in cheek. Cost is not a four letter word. Obviously literally it is.

But it's something that we always need to be cognizant of so that the things that we're paying for as rate payers, we're getting the services delivered that we, we deserve and that the quality of service is sufficient and that it's safe, reliable and clean.

So just starting off, I mean Hawaii, as we're all aware, our residential customers pay the highest electricity bills in the nation. So cost is something we're always going to have to be focused on. We also use the lowest amount of electricity and that's a similar situation for both our commercial industrial customers as well.

So we really need to think about, as you know, to the extent that PBR is sort of a more automated process for controlling cost, we still need to scrutinize cost drivers and look at expenses and capital costs as we go through that. So previous presenters have already touched on this.

But just to make a point, utility recovers its what's known as its revenue requirements through the rates and charges that we see on our electricity bills. We all have residential electricity Bill that includes uses based charges that are on a dollar per kilowatt basis.

So you use more energy, we pay a higher Bill and then there's a monthly fixed charges associated with that Bill as well. They are intended to recover different aspects of the costs of providing service.

The revenue requirement itself is the really the value of the utility's assets and the allowed rate of return for the utility in terms of the cost of it that it incurs to to do debt financing and its profit to shareholders. As well as different categories of expenses like operating expenses, depreciation and taxes.

Currently, the revenue requirements were set for Hawaiian Electric's utilities in their most recent cost of service rate cases. That's important because what we're talking about now is rebasing target revenues which are a portion of that revenue requirement or. Well, it's the revenue requirement and then the target revenues that are now on top of that.

So the key expense, like looking at key expenses 11 of the primary cost drivers and an opportunity to decrease cost is the purchase of what we pay for combustive generation. So we have higher fuel costs that if you look at this chart here, this pie chart represents Hawaiian Electric.

They're across their consolidated companies their percentage of total annual expenses for the year 2023. 41% of their costs are related to fuel oil costs. 23% are purchased power, a sub portion of that or the combustive generation through independent power producers. And that's roughly about 15%.

So things that we burn it cost us the 15% and the 41% with the fuel that's the for a total of about 56% in 2023 of total operating expenses related to combustion based generation. So PBR itself and the target revenues don't factor into those costs.

They attempt to address this through performance incentive mechanisms and other mechanisms that intend to increase renewable deployment. So there is a big opportunity there that's a big chunk of cost.

If we can get large scale renewable projects deployed efficiently and with pricing that's reasonable and with contracts that have fixed pricing and don't push a lot of those risks onto customers, that's an opportunity to help stabilize rates in the longer term. And we the important point here is too that doesn't fix everything.

We're still going to have a reliability challenge with because we need modernized firm generation from energy sources that are cost effective compared to fossil fuel and they also align with our clean energy and environmental goals. So again, focusing on the side of scrutinizing cost, what's happening with our capital expenditures?

What you're looking at this plot is the capital expenditures for the different utilities of the of Hawaiian Electric, Hawaii Electric Light which serves Hawaii Island, Maui Electric which serves Lanai, Molokai and Maui itself and Hawaiian Electric which serves Oahu. There's a number of.

You can see that there's budgeted expenses, capital expenses and then there's actual we're seeing some not insignificant increases in cost and the utilities representing that the its expenditures are needed for safety, grid modernization, wildfire mitigation Resilience, clean energy portfolio, things that are of benefit to customers.

But there is great importance and significance in understanding how those costs all piece together to deliver better quality services that are safer, reliable and delivered equitably and progress towards our clean energy goals. And that also helps with understanding where we can make where if necessary to make changes in terms of where we can be more efficient.

So regarding target revenues, past presenters have talked about there are mechanisms established within performance based regulation that automatically change the target revenue amount to it can increase or decrease. But what you're seeing is the target revenue amounts that are for each of the different utilities of Hawaiian Electric since 2020.

And what you observe is there's Hawaiian Electric has a 14% increase in target revenues Maui and 14 to 15% increase in target revenues. And in the rates that are set to recover those, you're looking at 20ish percent for wine electric and Maui Electric. So again, focusing back on, okay, what are we getting with those costs?

What are we paying for? So we have performance metrics that measure those, but that's sort of like a dashboard. You could consider it like your kid's report card. They might go from AB to a C to a D, but it doesn't tell you everything about what's going on.

And so the ability to scrutinize those costs is important. That is at least one of the aspects of a rate rebasing proceeding that would be of benefit and it helps address where we need better, where we may need better prioritization.

And I should note that just because there is a rate rebasing proceeding, it doesn't necessarily mean that there's a certainty that rates would go up.

I think one position that we would take is that target revenue increases through PBR should be on the table as part of the scrutiny that is applied to any request to increase target revenues.

But bottom line is in addition to the metrics you see here, we still have a number of issues that are really concerning from customer protections perspective. We've had underground fires with prolonged outages in downtown Honolulu. We've had rolling blackouts on Oahu and Hawaii Island. There's been energized electrical equipment igniting fires.

I think some of you have heard my testimony over that happened at my own house. We had sparking on the lines that was throwing sparks onto the ground.

And in a separate incident where there was a vegetation, another vegetation management issue which had caused a failure in a line that you see in the bottom picture there, which caused the utility pole to catch on fire.

So There are a lot of issues in terms of how we prioritize and what we're doing with our what we're spending our money on to make sure that we are getting the quality of service that is best serves our customers and that we get the safest, most reliable, most affordable electricity services that are delivered also delivered equitably and aligned with our state's clean energy goals.

And I leave you with, again, the point that these large scale renewables, if we can get attractive pricing and the right types of contracts, provide a nice mechanism to help stabilize and address costs. Thank you. Available for questions.

Thank you very much for that. We'll take a quick recession.

Okay, reconvening today's Tuesday, June 24th, 2025, informational briefing. Thank you to our presenters. As noticed, well, as made clear in the notice, my office received information on Friday regarding a potential whistleblower complaint—oh, regarding a whistleblower complaint, related to the PUC.

And as a result, I felt obligated to amend the notice to include an agenda item to allow that complaint to be discussed and the Members of the Senate to be briefed on the situation regarding that complaint.

I felt personally that it would be derelict of us to not address it, seeing as how the complaint appears to have been postmarked after this informational briefing was noticed. And so, with that, I will ask the Director of the DCCA to come up and provide some comments, taking into account, obviously, the fact that she received that, well, unless she received it directly, she received it from our office on Monday morning. Good morning.

Yes. Good morning, Chair, Members of the Committee, and Senators Wakai and Lee, and I am confirming that I—we—had no notice or information about this complaint until we received it from the email you sent from your office yesterday morning. And as I understand it, this was something that was submitted anonymously, directly addressed to you.

The DCCA did not receive any notice or receipt of the complaint.

However, I think, and thank you for forwarding it to us, because once it is brought to our attention, then it is something based on what is mentioned in this complaint letter that we believe would be appropriate for us to, through our HR, under the DCCA's HR Department, to commence an investigation into the concerns that are raised in this letter.

So, that is the process that I'm prepared to discuss this morning, in terms of how we will go about under our HR Department within the DCCA to look into the concerns that were raised in this complaint, understanding that it was done anonymously, and so, we need to proceed perhaps, you know, with what we have been presented, since we don't have any more information, we don't have someone we can contact to get more specifics to go on, in terms of doing as thorough an investigation as possible.

It would be, of course, something that we would want to maybe express to the complainant that once we undertake an investigation into an EEO matter that has been brought to our attention to look into.

We would—everything that we do at that point, in terms of the investigation, in terms of who we contact, who we interview, all those things will be kept confidential.

And we will start the process by providing any of the witnesses or the response—and the respondent—with a written acknowledgment form for them to sign off, which informs them of their rights and responsibilities, which would include the prohibition, a notice of prohibition of any retaliatory action, as a result of our investigation into these complaint concerns or allegations.

So, one of the things I think I wanted to impress upon the, and maybe through this route, to impress upon the complainant is that understanding the, the manner in which it was presented to you was anonymous because it's being sent to a public body. But the, the—once we start the investigation, everything will be kept confidential.

And so, it's, it's sort of a way to relay a message to whoever it is that is behind the complaint that if they are able to step forward and identify themselves to us in the process of our, our investigation, it would enable us to do a more thorough investigation into these concerns.

Because what we see in this is very broad, general.

We don't see any real specific instances and specific to this person what has been done, if they feel their rights have been violated, if they feel they have been subjected to some kind of abusive or verbal or otherwise conduct on the, and so, if this is a hostile work environment claim that is being asserted, it would be more thorough for us to be able to investigate the specifics of when that happens and what the incidents involved.

And without identification of the complainant, it makes it very open ended, broad, and this is all we have to go on. So, I just wanted to kind of relay that as a message to be sent that you know, something serious has been raised here, it would make it something that we could investigate more thoroughly had we gotten identification and we can get more facts.

Right now, I'm looking at this and is very, doesn't have a lot of factual detail to make it possible to do as thorough an investigation as we could.

So, that's basically what I wanted to say in terms of our process. Now, the fact that it was identified as a—or self-identified or self characterized as a whistleblower complaint, I don't know that there's anything different that we would do because obviously, you know, we cautioned from the beginning that there will be no retaliation to, you know, invest—as we investigate this matter.

But it's a difficult thing when you don't know who the complainant is to be able to monitor so that there's nothing retaliatory going on or could be perceived as retaliatory.

For example, if this person was directly supervised by, in this case, it's Mr. Baltimore, then it would be easier for the protection against retaliatory action against whistleblowers to be monitored because perhaps the thing that would be appropriate would be to not have this person be directly supervised by Mr. Baltimore while the investigation is going forward.

So, I'm just sort of laying out, I think, the, maybe the challenges of being able to do as thorough an investigation as possible when we don't know who the complainant is.

Okay, well, thank you very much for again, on short notice, making yourself available to address the Committee and help us understand what happens thereafter. So, on that note, I will open—oh, I, before we open for questions, I would just like to note that Hiko was invited to join us here today and have agreed to make themselves available for questions as well.

Members, questions? Okay, you know what? Let me go first. Well, we'll start with the consumer advocate. Okay. The one part—thank you for your presentation.

The one point I caught on to that I, I'm hoping you could elaborate on is your statement that the rebasing proceeding doesn't necessarily—rebasing doesn't necessarily mean that rates will go up. Can you elaborate on that?

So, there's been automatic—automated—there's the revenue requirement that was set in the past rate case. There's been adjustments to that revenue requirement through the automated mechanisms of PBR and it showed some of that in the plot.

And to the extent that those adjustments are contemplated as part of any rebasing proceeding, it's possible that when you scrutinize the costs, the determination could be that it's actually reasonable to come in lower than what those automated adjustments provided.

And so, you're assuming that, or presuming that, they will be addressed in this?

We, we would take that position that. Yes. That doesn't mean that it necessary, I, I—to be determined on what the actual how that would play out.

How so?

It, it just depends on what the actual rebasing process looks like because it's not a traditional cost of service rate making process. We're in the process of determining how that will be reviewed.

Okay. Chair or Mr. Kaitsu, could you help us out on the rest?

Well, first off, under rebasing, it all starts with a application from Hawaiian Electric. Okay, so we don't have that yet. But taking a step back from that, right, is what Mr. Colod and also Mr. Angelo has just said. We have to figure out which process we're going to go through, right, to evaluate a rebasing.

Okay. Right.

So, if we could figure that out, yeah, that would probably drive how the application looks to Heco, right? What they need to turn in.

So, I—okay, but that sounds like a chicken or egg thing to me.

Yeah. Perhaps I can elaborate, Mr. Chair, just building on what Mr. Angelo and Chair Asuncion have said. So, I think, again, when we issued the order in Feb, we issued this order that announced that we were going to rebase target revenues and we would use a rate case like methodology back in February of this year.

Thank you.

A lot's changed since then. So, probably the most pertinent thing that I think has changed is the passage of this SB 897.

I believe it's still on the Governor's desk, but assuming it's signed, that's now another revenue stream that would need to be taken into account that could potentially cover some of the costs that would otherwise be covered in the utilities application.

Again, this is speculative because we haven't seen what electrical submit, but that's like a new piece of evidence, so it's a very dynamic environment. So, I think again, when you say are rates going to go up, it's hard to say because we need to see what's going to be there.

But I also note that major legislation like that also takes into account there's going to be no double recovery here.

Mr. Kaitzu, you do understand this conversation just went in a circle really fast past, right? We're, we, you know, we don't know what the proceeding will look like because we don't know what will be in he's application, but Heco's application.

I, I understand.

What you just said is that Heco's application, to a certain extent, is going to be dependent on what the proceeding looks like.

I, I can, I can elaborate. Apology. I think people are, are touching on a lot of different things, but it will be based on a rate case-like process and that is essentially to comport with things like due process, opportunity for public involvement.

I think we definitely want to make sure there's a right for other interested parties to intervene. Want to make sure there's an opportunity for public hearings for public to comment on whatever proposal might come in.

I think what Mr. Angelo is referring to is there currently is a working group meeting that's being facilitated with all the parties where we're looking at opportunities to say, okay, this is how a rate case would normally be done. Does it have to be that way?

Can we streamline it? So, for example, making tweaks to it, so, for example, maybe certain categories of costs haven't changed a lot. We don't need to spend time on them. We can focus on the big ticket items where you do see differences of opinion about what costs should be done.

So, for example, wildfire mitigation type of efforts or improving resiliency or things like that. I think that that's what we're referring to in terms of what the process may look like. So, I think we have a general idea of what the process will look like.

We've announced it likely be a rate case-like process, but that doesn't mean it's going to look like every rate case that Hawaiian Electric has ever done before, to the extent we can find ways to make this more efficient by, for lack of a better word, shortcutting certain types of analyses, I think we take them.

So. Okay, so that's helpful. There are some fundamental procedures that need to be facilitated. I'm assuming that's you're, you're speaking toward the HAR rules that you mentioned earlier. There are some specific procedural things that need to happen in this process that are clearly established.

But there is some discretion left to the PUC to determine exactly what pieces of the, of the pie, are discussed in this rebasing. And those pieces are somewhat impacted by the Governor's consideration of legislation on his desk. Okay, so we can assume that we won't have some clarity.

We can assume fairly that you guys can't make a reasonable determination until we have a decision by the Governor on that piece, but that that timeline is. The deadline on that is quickly approaching.

And so, my question is, at what point can we expect a determination from the PUC as to exactly what this rebasing is going to be? We know on the outside, and I believe, I believe we're expecting an application before the end of the year.

Hawaiian Electric can correct me if I'm wrong on that, but can we reasonably expect some clarity on the process between July and December?

Yeah. So, what I can say is, you know, we're wrapping up phase five. We solicited briefing for the parties on their positions for phase five. Those came in in May, so we're processing them. So, I think it's, it's near—I, I can't give a specific date, but yeah, I think definitely before the end of the year.

Seems we want to get that straightened away before Hawaiian Electric files the application, so if we have any guidance to them about what should or shouldn't be included in it, they know that in advance, so they can incorporate it into that application.

Yeah, certainly. I mean, it does seem like that needs to be—I mean, you do need to give...

Yeah. We don't...

Want to make sure all the parties.

Right. Yeah, right, so, so, we should expect it to come out, I mean, weeks, maybe months before the end of the year in order for this to be reasonably fair for everyone. Okay. Okay. Those are my questions. Thank you. Senator Lee.

Thanks. Thanks for your presentations. Oh, yeah, yeah, sure. You know, I, listening to all of this and, and everything, just to sort of replant where we're coming from, you know, more emails we get probably, or phone calls on a regular basis are about cost of living than, you know, probably anything else here in Hawaii.

I think everybody can feel that no matter where you live here, electricity being obviously one of those just painful things that people cannot avoid. Right? You can't not function in society today without power. You get your monthly electric bill and it is frustrating and at many times, just completely—it's sad to hear some of the stories from families out there who have to choose between paying their power bill, putting food on the table, basic stuff.

So, the decisions I think that we're all talking about today, as technical and in the weeds as the conversations can get in this kind of space, are rooted in that very real make or break daily life for a lot of people. And I raised that because, you know, there's a lot on the table right now. Right?

You've got everything we've been talking about, the wildfire stuff that's now in—the ball's now in your court to determine what that's going to look like, what level of investment and resulting cost is going to be added to bills, not to mention everything we're talking about here in this hearing today on how as we go forward, the utility is going to have an incentive to either spend money on stuff or overspend to get additional revenues, as was mentioned by one of the presenters.

And what we're talking about is not short term, right? These, some of these decisions are going to be like 20 plus year impacts for various projects and investments. And that's not cheap. I mean, the difference, the decisions being made, it could be between hundreds of millions of dollars that are added to bills in the coming years.

It could be tens of billions. And that's all absorbed by local families. And I'll be the first to admit we're going to have to invest. I mean, you know, make no question about it, right? We, we cannot have another Lahaina. We need a reliable electric grid.

We need to get off of fossil fuels, as the consumer advocate had mentioned, which is like the number one driver of cost and volatility and who knows where now this whole Iran, Israel and, you know, everything else is going to drive oil and gas prices, but we also need to do it in a way that is smart and responsible.

And I raise this because I'm worried and cynically, having been around here for a little while and watching these proceedings and, you know, past iterations over many years, that we are potentially setting ourselves up for what could be one of the largest cost increases to consumers really in history.

And the difficult thing is I look at the decisions that are yet to come, and I look at the decisions that PUC has been making and the process, and I'll come back to process in a second.

And were it me, and I say this cynically, if I was the PUC and I wanted to be able to maximize cost increases to consumers, systematically dismantle a lot of the consumer protections and reforms that were put in place over the last decade or so to protect consumers, to limit cost increases, I would do exactly what the PUC has done over the last couple of years, and I would put in a place of process that is exactly what's being contemplated here.

And to the Chair's point, I don't think anybody is comfortable with an unknown circular process where we'll figure it out, you know, after the utility figures out what they want.

And I think it's fair to say I would be willing to bet everything in my bank account right now the utility is not coming in for a cost decrease. So, that being said, it comes down to process. Process is everything.

And the reason I raise that is because we've had 100 years of what has been the traditional regulatory process throughout the 20th century, come infrared cases, you know, all that jazz.

And the problem has been, and this is not, I'm not singling out PUC here or Hawaii in general, this is true, you know, across the nation in all places where the regulatory process for investor and utilities looks largely the same, that PUCs are at a disadvantage and get overwhelmed by utilities that basically steamroll them any chance they get.

And we've seen this here, our own PUC has spoken to this multiple times in over the last decade where utility can come in, they basically get to set the agenda, right, and the terms of what they're coming in for.

Just as we're waiting to hear, as you had said, in this upcoming go round, and they get slammed by way more capacity for hundreds of pages of filings at the last minute, which has happened numerous times here with our utilities in Hawaii and overwhelmed staff, at a time when staff often even bounces around right between utilities higher up, former PUC staffers all the time, happens here as well.

We know a lot of them, good people. But when you have a financial incentive on the table, right, I mean, these kinds of decisions need to be done with clear accountability, with clear transparency, with clear guardrails. And right now, as we think about what the process looks like, there's a reason why the Legislature was clear.

And I gave the PUC credit for doing a lot of the work, you know, getting PBR up on its feet and some of the reforms that we've been talking about to do things a different way to, in the words of, well, really the Legislature, who set this whole thing in motion, to say we no longer wanted to deal with this kind of old school regulatory compact, that we want to break the link between these different financial incentives.

And in the law that was passed that we pushed out of this building, which directed the PUC to pursue this direction, I mean, it literally was to protect consumers by proactively ensuring that the existing utility business and regulatory model will be updated for the 21st century by requiring that electric utility rates be considered just and reasonable only if the rates are derived from a performance based model for determining utility revenues.

And gets into all the different details of that. The whole thing's even known as the Hawaii Ratepayer Protection Act. And the intent there was to get away from this older traditional rate case process where the utility basically controls the agenda and drives the outcomes.

And I say this not making accusations to anybody, but I think it's fair to say that if it were true that our process here in Hawaii, over many years, many generations, were absolutely fair and appropriately balanced the interests of ratepayers and families here versus those of utility shareholders, we would not have seen over the last 20, 25 years, KIUC have rates that have been basically stabilized with savings to consumers while achieving better customer satisfaction, as well as all the other things that we've talked about, while at the same time, we've seen rates with all the rest of the islands skyrocket with the kinds of pushback we've seen at every turn to make sure that the shareholder side of it is the priority.

And I give our friends there at the utility all the credit in the world because that is their fiduciary responsibility, right? Number one, to look out for shareholders. It is the responsibility of the PUC to look out for ratepayers.

But going backward against certainly the intent of the law the Legislature passed, which put the PUC on this trajectory to look at different ways to reform and set rates was certainly intended for review and to consider all these things, but it was intended to move forward to look at all right, what then is going to be the next PBR 2.0 or 3.0 version?

Not to go back to something that looks like the old rate case structure and process in which the outcomes we've seen for 100 years, where, especially at a time when the PUC has been hemorrhaging staff and faces at every turn, proposals to and from you, Chair, to fast track the process, cut corners as fast as we can to get decisions done while having so much on deck that could add tens of billions of dollars to rates over the next 10, 20 years, that people are going to have to pay.

That is why I'm worried and that is the concern that I hear I think from this whole discussion. And I want to open with that because this isn't a technical discussion.

It is a discussion that has real world impact and I just want to center us there and appreciate you coming forward and everybody for having this discussion and appreciate the Chair and the Committee for allowing me to join in.

Okay. Senator Wakai.

I agree with everything Senator Lee says, but I have some actual questions that I'd like to focus in on. Cost of service was the old model and in that old model, HECO was allowed to have 9% profit. Correct?

So, what you're referring to is the capital structure. In their last set of rate cases, the authorized return on equity was set at about 9%, yes, but it would change every rate case.

Okay, so under the new regime of PBR, they're still going to be allowed a 9% profit. Correct?

9% profit, that is a complicated question. So, the 9% ROE is used to anchor the earning sharings mechanism, that safeguard, that will track the earnings or the, the, the lack of earnings around that that can trigger either the, the return of excess earnings or the, the backstopping of, of erosion of earnings.

But in terms of, not necessarily because it's not like there, there's a rate that, that's earning that it's being adjusted through the multi year and customer dividend and X factor formula.

Senator, I, I know I'm not being very clear and I apologize, but I'm actually not an economist so I'm just being cautious of not saying something that is inaccurate.

Okay, how much profit were you—did you allow HECO to retain last year?

I'd have to defer that question to HECO in terms of how much profit we can pull data for the increases in the target revenues that occur during the MRP.

Mr. Kelly, how much profit did you guys make last year?

I don't know.

Who, who would know? Okay, well, traditionally, it's been north of $200 million a year that has gone back to, to HECO. So, when you talk about PBRs and the, the entire regime that you have going on there, one thing that I found, there's a difference. Mr. Colone said that through PBR, they got $4 million in incentives.

And if I wrote down correctly, Mark, you said it was $2.4 million in incentives. What's the correct figure?

That was for just interconnection.

Oh, okay.

Mr. Colone had the total.

Okay. So, HECO got, under PBR, $4 million in incentives, correct?

Yeah. Subject to check.

In a given year—they're, they're, they're evaluated differently in every year or they're evaluated annually. So, I can get you the numbers for what they've earned in each of the years, if you're interested.

Okay. Because it seems like this PBR approach is heavily weighted in incentives. How much did they get in penalties for not meeting certain expectations?

I have the data. I don't have it at the tip of my tongue, but we have that, and that's primarily incurred from the transmission distribution reliability PIMs. I know they hit the maximum amount of the PIMs. I'd have to get the exact figure for you, though, Senator.

Okay. Because from my perspective, I mean, I'm most concerned about reliability and rates. And in both these areas, I don't see that HECO should be getting any kind of rewards and awards for that. And I look at their power efficiency, they are 32% power plant efficiency, which is well below the national average.

You look at their service interruptions, it has jumped from 2020 to 2024. In 2021, they had 81 minutes of interruptions. In 2024, it jumped from 81 minutes to 181 minutes. The reliability is going in the completely wrong direction, so, how in the world can they be getting incentives, which I see is just rewards for good behavior?

It should be going the opposite direction. They're giving us less reliable power, and it's costing all of the consumers.

Senator, subject to verification of Point Electric. I believe the large spike you're referring to in 2024 coincided with the implementation of new wildfire mitigation efforts they've been putting on their transmission lines. They're designed to mitigate the likelihood of sparking from broken lines, but the downside is it takes longer to restore service.

So, I think we're currently working on a way to address this. Hawaiian Electric owes this report at the end of the year on that and how we can improve those incentives to accommodate those wildfire mitigation measures, but I think that is the cause of the spike you're referring to in 2024.

Okay, well, let's look at 2023. We went from 2020, that's the benchmark, I'm using 81 minutes of disruption, 2023, 132 minutes, nearly double. And 2024 was a disastrous year for them in terms of power outages.

How in the world can they be rewarded with 1 million, $4 million in incentives, when their power reliability has just degraded over time?

Well, under PBR, the incentives, the specific incentive mechanism, is targeted towards different outcomes. So, they could earn reward on one hand for, say, interconnecting DER systems more quickly. They can separately be penalized for reliability. So, again, these PIMs work as a portfolio, but they're not—each of them is not an omnibus. They're targeted for specific, different things.

The 4 million is again, right, it's the total that they earn in that year. Right? So, you need the breakdown to see, right, what made up that 4 million. Right? It's not just reliability, it's just not interconnection. Right? So we can give you those numbers if you want to break it down. Right?

To see whether or not they truly got a reliability incentive in that year. Right? Adding up to the 4 million.

Okay. So, I mean, you guys are the geniuses on how you're going to set up the PBR. I'm just speaking from the public standpoint, they're getting unreliable power and they're paying astronomically high prices for it.

I mean, if we were getting really reliable power and paying high rates, okay, maybe some of us would be agree, be agreeable to that. But in this particular case, we're getting the worst of two worlds. We get unreliable power at the highest cost in the nation.

So, I want to point to this docket you guys opened up last August, Energy Equity and Justice Docket, and this one focuses on, on rates, and it says that 80,000 people in this state are energy burdened. And it's reflected by all the disconnections that are taking place because people just cannot pay their bills, like Senator Lee mentioned.

In 2023, they had 12,800 of our neighbors got their power disconnected because they couldn't pay their power bills. That is a clear indication that people just can't afford this, and now they have this PBR docket in front of you. Undoubtedly, the rates are going to go up and we're getting poor service.

How are you going to reconcile this for the public?

Well, first of all, on the disconnections, we just opened a docket just on the disconnections to take a look at that process for both ECO and KIUC. Right? And whether or not there needs to be tweaks to that process and the like, right? We had RMI, Rocky Mountain Institute, do that study for us on interconnections. Right?

It provided us some data and HECO and KIUC have been involved in this equity. The equity docket is more, I would say, a general item, and as issues come up around like affordability and the like, we open separate, exact dockets to examine those areas precisely, versus a broad overall docket that could, if we did, if we did it in the broad overall docket, you're talking years to come up with a fix if needed.

Years? People are leaving, Leo. This cannot be fixed in years. Should be months.

Yeah. No, that's why we opened a separate docket around, just on specifically disconnections.

Okay, thank you. Chair, please share maybe as a follow up on some of the points that you raised previously, you know, with respect to Senate Bill 897's adoption, if it is signed by the Governor and it may address some of the issues that your rebasing docket is intended to cover, wouldn't it make sense to defer action or withhold moving forward on that new docket until you actually see what Senate Bill 897 is supposed to accomplish on.

The rebasing docket or which on your rebasing docket, we can certainly do that. I mean, the factor that immediately would be this part two of that Bill. Right. So securitization. Right. And again, right. There's a process that HECO will need to come through us to get a financing order, who they're financing it with, et cetera. And then we would also look at what the impact to the ratepayer would be, including all the parties at that point.

I think the presentation that you and your staff provided earlier talked about instances where big investments needed to be made for specific kinds of projects as part of this PBR process. And it would seem that that is a more appropriate approach to pursue given the adoption of Senate Bill897. So it just seems that the rebasing type of approach is really premature at this point.

If it is the whim of the working group. Right. To delay. Right. PBR 2.0, if you want, you want to call it that, then certainly. Right. As we go, as we go through this now, as with the working group. Right. We're trying to identify those issues.

And if at the result of that, if the working group comes to the Commission and says we should hold off. Right. Then it's a matter of, okay, does PBR 1.0 continue as is. Right. Because we're going to hold off making any changes because of we're holding off on rebasing. Right. So that, that all plays a part. Right.

We're, we're undecided. That is certainly something that we can look at with the working group, but that's the best answer I can give you. Right. Until some proposal comes to the Commission on what to do next from the working group, we can act. Right.

I can't tell you, yes, it would be better to hold off on one and then push it off.

How many parties does the working group have? And you mentioned that there is an upcoming meeting. And so if the working group did recommend a deferral of the rebasing docket and reevaluation of PBR in the context of legislation that has been adopted, what would your timeframe be for actual implementation?

Well, going backwards, I think if you, if you count up the parties such as Hawaiian Electric and the consumer advocate who are part of the working group, there's about 10 entities in the working group. I believe their next scheduled meeting is this Thursday, I believe.

And I'm sorry, your last question was on timing in terms of how much time would be needed? Well, I think the way the Commission looks at it is we're working backwards. And you know, we set up the five year mrp, we approved the tariffs for it all to go into effect in kind of June of 2021.

So five years from there is technically May of 2026. So we settled on January of 2027 to start next MRP to kind of preserve that continuity. So that's what we've been working backwards from.

So I guess my answer to that is to whatever we're like Chair Sonsian has said, whatever the working group is willing to propose or willing to look at, we've just kind of always assumed we want to try to get it in place by 2027 to maintain the continuity of our multi year rate cycles.

But if the working group has a different idea or proposal, we'd be happy to consider it.

Anyway, just building on that, I just want to push on this because Carol, to your point, who's in charge here? I mean, you guys have the authority, right? The Puc, the three commissioners are determining what the process is and what can happen.

Deferring to waiting for a consensus from a working group, while that would be like lovely and ideal, is absolutely not how I think in the real world any of this stuff ever plays out. I mean, if the Legislature did that and said we're going to have a task force until everybody agrees we're not doing anything.

State would still be back in like 1892, which, you know, that was a bad reference. The state would be back in the 1950s, 60s. But the point is, I mean like I think with Maui, where the PUC could have stepped forward and addressed that as other PUCs and other places where you had wildfire events and things like that have and created some level of certainty and some level of timeline and other things which would not have potentially left us here today.

Like now with PBR where you'd have a 1.0, right? We've taken steps, we've tried different things. There's a clear trajectory, a clear direction. The Legislature has set out for the PUC to protect consumers to align the utility's financial interest with that of everybody here in the state.

Nothing stops you from taking those next steps to figure out what that is. But it's leadership. We don't have time to, like, dilly Dahle and do all this because ultimately that puts the ball back in the utilities court, which is why you guys are getting steamrolled right now and why, I think I had said just a minute ago, why things are so worrisome, because we're going back to that same process where that's the case.

Senator, may I ask some clarifying. I want to kind of ask some clarifying questions. The working group was the. The working group was established through the. Through the PBR statute, right?

Well, through the docket. Through the docket that was open in 2018. Okay, so under a prior. Okay. Group of commissioners, what are.

What are the procedures around the. The working group? Do they. There's 10 Members, so I'm assuming you don't vote by majority. Is it. Is it is a consensus among the 10 Members required for the working group to come to a decision on items on policy questions in their responsibility?

No. And perhaps in response to your question, as well as Senator Fukunaga and Senator Lee, I apologize if we gave a misleading impression of the working group. The working group isn't this group that comes together and votes and dictates policy. Basically, PBR is a massive undertaking for any Commission and wanted to ensure that the.

A broad voice of stakeholders who were interested in PBR were involved. And so we have a diverse group of voice. There are environmental groups, there are financial groups, consumer protection groups, Der solar industry, trade groups, a variety. We want to make sure all their voices are heard. And that's initially why it started.

We wanted to make sure that as we looked at Pbr, we monitored that we had a broad group of voices because there's a lot of interests that we want to make sure we're accommodating.

We don't want to just get styled and focused on just renewable integration at the expense of not caring about consumer rates or focusing on something. You know, we want to make sure we're taking a broad look at everything.

And over time, because the stock has been going through these multiple phases, the working group provides a sounding board to make sure that they still feel involved. We want to honor the time and energy and commitment they've given to help develop pbr. They're very knowledgeable about the mechanisms themselves.

And so when I refer to their working group, it's more of like an opportunity to, to kind of get their opinion, to have their input. But I guess going back to original.

Question, Senator, ultimately the, the PUC makes the call. You make the call.

So, so when I, when I talked about the time, I, at some point.

After the passage of, of SB897, I'm assuming it will be allowed to become law. I have not asked for it to be vetoed. So, so we can safely assume that a call needs to be made at some point after. Yes.

SB897 and at some reasonable point before the end of the year to allow all of the parties enough time to absorb the changes that might be proposed. Yes. In anticipation of another proceeding. So, Chair, what are, so we, we know those conversations are having, are happening. They're required by the statute.

They sound like they're healthy conversations because these are complicated things. But what are your recommendations as of today about how the process should be designed to ensure the public that a rebasing that doesn't inevitably lead to a rate increase?

Well, the process will be right when that proposal comes in. Right. From Hawaiian Electric. Right. So new docket, right. Whatever you want to call it, rebasing, rate case, et cetera. Right. That process is the automatic party is the consumer advocate. Okay. Okay. Historically, there's also been interveners.

Sure.

Right. And they would apply to intervene usually after public hearing. Okay. So we go out. Right. On any rate case doesn't have to be Han Electric. It could be our private water, wastewater guys, you know, kic, same thing. Right. Any type of rate case, it's a public meeting.

In this case for Hawaiian Electric, we go to their, their islands. Right. That they have jurisdiction over to get input from the public. Okay. After that. Right. Interveners have 10 days from the last public hearing to intervene. Right.

So you're going to follow the, you're going to follow the procedural requirements. Okay. But those are, those aren't changing. Those are not anything that the public is not expecting that that will result in anything different. Because those are the processes that have always been in place because they're required.

Okay. So what are your recommendations on these policy issues that we're talking about today that are still being deliberated through the working group process where you're taking feedback, you got to have some sort of conclusions on how this thing is going to change.

Yes.

Well, as far as the rebasing, I haven't thought about it. I can tell you what I'm thinking about pbr. Right. How that process could be better. Okay. Because that's the topic at hand. Right. And this Is my own personal after viewing. Sure. PBR for the past four or five years. Right. One is, you know, I agree with.

Right. We need to make the incentives more. Right. No paying that Kiko pays attention to them. Because right now, as I see it, we have, right, what 11 or 12 different teams, some competing with each other. Right. And you know, I'll say personally. Right.

If I'm, if I'm looking at that and I'm a company, you know, I'm going to try maximize whichever incentive I can at the expense of doing everything else. Right. Pays for it.

But perhaps they're not lucrative enough. Right. That was. Yeah, that was what I thought I understood Ulupono to be saying perhaps at this point the incentives are not lucrative enough for us to be getting for. For the regulated entities that fall under them to actually be trying to maximize them. Okay.

Focus in on, you know, a number of incentives. Right. Because we're talking who pays for the incentives?

Who pays for. Is it all upono or is it the ratepayers? This is why I've been sitting here grumbling and twisting my face the whole time. And I'm sorry Chair, but I'm hearing that the priority isn't the ratepayers. It's pursuing policy initiatives. It's pursuing the agenda of nonprofit tech row billionaire entities.

It's about where I'm sitting here listening to Der being incentivized when you're cutting people off and now you reduce the rate paying base. What about the people living in apartments in Kalihi? Shouldn't the benefit of these incentives go to those who are left holding the bag when you make these.

That's what I guess I'm seeing is there's a disconnect. It's about the policy is the number one priority and everybody's being left in the dirt right now. And I also think too and I've always been a big fan of renewable energy. Why? Because eventually it was supposed to be cheaper. I haven't seen it.

And now I'm hearing that there's not going to be metrics applied to these projects to ensure that the projects they're investing in are actually going to pencil the best advantage of the consumer. It's what it so you have these exorbitant proposals that could be adopted.

And my plea to everybody, including the consumer advocate is and streamline sounds great. But more public participation means more robust discretion, more of a deeper look and more of a cognizant reality of the people who aren't at the table. Not a Part of a working group. I'm not yelling, I'm pleading with you guys, okay?

Step outside this building. Those numbers of people who've lost their electricity, those are lives. Shouldn't they get the benefit of an incentive, of a Der connection? Shouldn't there be some mechanism to roll relief to those so that we don't have the.

So I hope as things move forward, that the PUC aggressively sees this and also sees that everything is an ecosystem. An incentive doesn't happen over here by itself. Everything is connected contextually. And so I'm hoping that the PUC, as it looks to the dockets of 897 and all of these things, that they can create this contextual look.

So when something is being occurring over here, we understand the net effect across the whole ecosystem. So I appreciate that, Chair. I'm sorry for doing.

But I think it's so important that we got to ensure that the consumers and the public are at the table and the benefits flow through them as well as through policy and for Hawaii as a whole.

Thank you. I guess. Can you finish your thought on pims?

We need to concentrate on a specific number, right? Because we're talking. We want. What we want to drive. Is he code to do certain things within a certain time frame, Right. So if it's affordability, put that on the table, right? Let's concentrate on that. If it's wildfire mitigation, let's put that on the table. Right.

What we have now is. Right. 11 different things, right? And on top of that, I believe in one previous working group meeting, there's over like 100 metrics that we're tracking, right? That. That's not the way to do it right. Now, granted. Right. We were, like Mr. Kaetsu said, right. Ours is the most robust PBR, right.

In the nation. Right. And we took it from. Really, Alberta was Alberta, Canada, Right. They've had PBR in their jurisdiction in Canada for a number of years, a number of iteration, five year iteration. Right. But they have different. Yeah, it's a different. It's a. It's a different environment there for energy.

Right, but that's the one that was the most advanced.

Right. Well, so. Okay, Director, now. Now I'm going to cut in again, if you'll excuse me. You know, with the PIMs, it seems like we're talking performance incentives. We're talking about carrots here. And to Senator Wakai's point, not talking about sticks at all.

And this rebasing to me, you know, we're talking about carrots and Then we have this rebasing come in. It's. It, it's almost like the, the Hiko came in and said, you know what, we want ranch dressing too. And instead of talking about the sticks, you guys went, yeah, okay, come ask.

And it's like, what, what part of this process, in what part of this process are you guys going to start just checking to see if they're just raiding the whole garden? I gotta tell you, like for you to say that you have not thought about what rebasing. Looks like you guys already said you're gonna grant rebasing.

Are you really, are, are you really completely deferring the decision that's supposed to happen in the next quarter reasonably seems to me in the next three to five months so that there's time for everybody to adjust.

You really haven't thought about it at all and you're completely delegating it to this 10 person working group who appears to be in conflict over what we should be doing. What is your recommendation on rebasing? I'm surprised that in preparation for this briefing, you haven't thought about it at all. Well.

Rebasing has to happen, right? Because the alternative for Hico, right, And we're only talking HECO. Yeah.

Hawaiian Electric, Oahu. Their last rate case was 2017 and it's been adjusted. Right. Inflation wise. Time, that's what we're locked in, right? Maui Electric, right. On that, on that kind of three year cycle that the utility was on. Right? Was 2018 and I believe Helco was 2019. And then we started PBR, right. We started the docket, right.

Eco agreed that that would be where this kind of set, right. Going forward. Right. And then you have all the different mechanisms as we go. So rebasing, right. To Mr. Angelo's point, right. It could be if, if we kept up, right? That could be the number at the end of the day, right.

And that's where he comes up with there might not be a rate increase.

Okay, So I, I get that and I understand and respect that this is super complicated. That's why we have a Commission that's looking at this and not the consumer protection Committee taking it up in the legislative session every year whether Chico gets the right to increase their rates or not. We have a, we have an expert Commission.

We have a full office staff that's been tasked on working on all of this. And it's still complicated. I get that. But my problem with that statement right there is that it seems to me the public assumes that once he asks for rebasing they're going to get a rate increase and we're all going to have to pay.

Right. There are differences of opinion even here on the Committee about what this next PBR period needs to look like about whether we should even have a rebasing or not.

But right now the perspective, I think the perception is that PICO comes to the Puc, they ask, they get and really what we're haggling about is how much they're going to get.

That's why I'm asking you what are your recommendations here to provide a new process, whatever it's going to look like, that allow us to take the consumer advocate seriously when he says he goes going to ask for a rate increase. They might not necessarily get it.

Yeah. So you. I think I would. What's the plan? The plan is try to be balanced as possible. Right. There's a lot of factors, as you've heard today, that will go into this. Right. I can't sit here with you today and tell you exactly how it's going to go without even that data. Right.

I got what we got up to today. Right. But that's not the application before us.

Right. I mean it. Let's see now we're going in circles again. They're waiting on to. To submit their application for guidance from you.

Yes. And that is what we're working on as far as how the rebasing will happen. Right. Because once you get that, then you know what data that they need to give us in order to look at the rebasing and. Or approve or deny it.

Okay. So how much time do you need to review everything you need to see before you can provide some clarity on this for the public?

If he got turned in a rebasing tomorrow, then statutorily we have a deadline.

269.16. Yeah. 10 months. Yeah, 10 months.

So you're not going to make a determination on what the new rebasing looks like until HECO submits their application?

No, no, no. I think. I think that the thing.

Chair sensation is. Yeah. So work back. I said the application, the actual rebasing application. Okay. Like what they want the rates to be. That's right. From there it's 10 months. Okay. Before that. Right. We need to come up with the criteria, whatever data. Right.

How much time do you need to come up with the criteria?

Well, like Mr. Well, Mr. Katsu said. Right. That's in discussion right now. We have one more. Right. Hearing or meeting of the working group. Right. And we are welcoming proposals. Right. Okay. And it could be non consensual. It could have Hawaiian Electric's proposal. It could be. Proposal. Right.

We would hope that they can kind of group together and kind. Which makes it a little easier, but. Right. The process. Right. Even just our regular rate case process. Yeah. We always strive. We always strive to have parties. Right. Stipulate.

But we also know that they can't ever come to that sometimes, which means we allow them to propose what a framework should be, what the decision kind. And that's what the Commission takes into consideration. All of it.

Okay, but you've already made the decision. You just said rebasing has to happen.

Well, rebasing has to happen.

Why? Well, if the, if the work does not require it.

So sadly, maybe I can. I can think there's kind of getting caught up in circles. I think we're talking about slightly two different topics. There's the process to achieve rebasing and then there's the result. Is there a rate increase? What is that? Rate increase? Right. And those are separately distinct talks, I think. First to your question, Chair.

We have decided that in an order, we issued it in February. We said that we're going to do. We're going to rebase Wine Electrics, target revenues. And we laid out some reasons there, Senator Lee, and you know, among them, where it's an opportunity to revisit the utilities operations, see how they're doing.

Have they made operational improvements since 201720182019? Have they responded to the PBR incentives in terms of the process by which it will be done? We indicated that we were leaning towards a rate case like proceeding. The working group then said they would like to explore opportunities to streamline parts.

We said that's fine talk, we'll take a look at it, but we're going to issue some kind of guidance ahead of Hawaiian Electric's tentative application date, which is.

So hold on a second because I say the Commission's already made that decision because rebasing whether, you know, whatever the process and some of the details generally is looking at using that fundamental kind of existing process to go back and reassess. Right. Because obviously 2017 was a long time ago and all of that.

But the Commission previously said we're not going back from the new process, the new way we're evaluating this stuff through Pbr said we're literally we're not going back. That was the previous chair.

And at this point, and to the point of the chair as well as Senator McKelvey and Senator Wakai on cost and everything else that Whole next iteration of where do we go from here? How do we create performance based metrics that do drive the utility to do the right thing?

Not just incentives, but the sticks which have never really been present in the discussion.

All of that is entirely possible to generate the revenue needed to make up from 2017 to today that a traditional rebasing would do without just handing over a blank check to the utility without any requirements, but through the lens of what's been put in motion to look at what those specific outcomes are that we want with those mechanisms through a performance based metric so that at the end of the day we actually get something out of it as consumers, because there are a lot of options out there to be able to achieve that without adding another dollar, in fact, while protecting consumers.

I'll give you an example, right? One of the first things that was put in place, or one of the things that Hawaii was first to put in place as part of this whole kind of reform, was changing the pass through cost for fuel to the utility.

Up until now, utilities basically take 100% of the cost of fuel, whatever it is. Oil could be like a $zillion, but 100% of it just gets added to ratepayers, right? So no incentive to change that from the utility. No financial incentive, but now there's a couple percent that the shareholders absorb of that fuel cost.

And so now not only is there just a little bit that ratepayers are no longer paying directly, but there's also most importantly a financial incentive for the utility to make the right investments to change the whole pie of what's being looked at so that the resulting ratepayers pay less because they're not going to have incentive to just pass those costs on, no matter how sky high they get.

That could go from a couple percent up to 5%, 10%, 20%. Right? To create a real incentive to change this stuff.

But that's part of the equation and the discussion as we think about rebasing, rather than really the traditional rate case where the utility controls the process as it has the last century, where you guys are going to get steamrolled and as a result, consumers are going to get steamrolled.

And I base that not just on that last 100 years of actual real world results, but the last two years of decision making the Commission has made with has been entirely the utilities position, which has dismantled a lot of those consumer protections and choices like time of use rates, even as an option.

Similarly, I have to ask you to ask a question.

Oh, thank you.

So I guess my question is, are you guys set on rebasing and a rate case as the mechanism, regardless of if you change things around the edges, or can you and do you have the authority and ability to move forward with a separate 2.0 for whatever the next set of PBR and effective incentives and sticks for the utility are to get them to comply so that we get where we want to go collectively as a society.

So, Senator Lee, I can take a first step if you don't mind. I think working backwards from your last question. First of all, we made very clear this rebasing is unique to the situation we find ourselves in here between multi year rate period one and multi rate period two.

It is not intended to foreclose further refinements, improvements, evolutions of this through subsequent periods. But now going to your. A lot of the points are raising. You know, there are valid concerns and there are things the Commission considers. But again, you're talking about this whole pie and that's one of the things that rebasing helps to.

It determines like what is the pie. And then you can start to determine, okay, we want to be really mindful of just starting to throw out sticks there because if you don't know what that value of that stick is relative to other things, you're not going to be able to calibrate the incentive.

It might be a disproportionate disincentive, it might be too small of a disincentive. So the rate basing helps kind of update like what is the size of the pie that the utility is looking at. That gives us updated information to consider. Okay. Now as we look at incentives, whether they be rewards, carrots or sticks, what.

How do you calibrate them properly to get the desired outcomes right? Maybe to go to your analogy chart kind of gives us a sense of how big is the garden we're looking at. And now we can determine what are the carrots and what are the sticks, how big should each be.

Otherwise we're still operating on a pie that was set in 2017, which might not reflect the utility's current situation at all, which you know will dull the impact of any incentives we make. If it's outdated data and it's not going to incentivize them meaningfully.

But all that's subject to what you decide to put in as the process, the framework, all that stuff that can all be addressed well, I mean, if you choose to address it well.

And the reason we. So you, you kind of have a trade off, right? So the cost of service rate cases, traditional way. I know there's a lot of negative Association with that. It is by, it is the most thorough way that, that current regulators know to investigate until you, you go through it.

On the other hand, you could go, you could go lighter. You could do things like, as Ulupono mentioned, you can use historical costs, you can, you can use averages, things like that. And we want to find that balance. Like what is the appropriate trade off between that efficiency versus the scrutiny. So I think that's what we're looking.

But I think what we're saying is not only historically, but also just recently in this Commission. The Commission has not found that balance. It's been entirely utility leaning, I would say.

And so that's why the concern is if you're going to go through this process where the utility basically controls, which has been the process for the last 100 years, which is why we in part have the rates we do and we're in the situation we're in relative to other places like Kauai, which have made significant progress because they don't have that financial incentive, then there's obviously, I think, question of faith in what the Commission's going to do.

If it's saying, yeah, we'll just go through this old process that clearly has demonstrated some real issues.

Senator Wuaki and then Senator McKelvey.

I love following Senator Lee, so brilliant. I want to. Before we even start talking about rebasing, let's talk about current basic. I'm astonished that the HECO executives are in the room and they have no idea about what the profits are. But let me tell you what the numbers look like.

Last year, HECO was the most profitable in terms of income. It went up 27%. They had a record $514 million in revenue. That was up from 2023, which was at $403 million in, in revenue. I mean, they're making money. But I understand also they have more costs on their, in front of them as well.

Obviously the fire settlement, they have a fire mitigation plan. They have an igep. They have a lot of plans to spend money. In their 100 plus years of existence, has HECO ever offered a rate reduction plan?

I can only speak during my time at the Commission. No.

Right. I don't think in the entire history of HECO did they ever express to the public a concern about the way their rates were going. It's always the assumption that it's going up. They never assume it's ever going to stay static or to the benefit of the public is going to go down. Does that trouble you? It does, but.

Right. When we look at what we expect the utility to do and what they can earn incentives on and what they can earn their profit on what level? Right. Recently, you know, if you ask me, my concern is why aren't you hitting your roe, Right. Which has been a factor for Hawaiian Electric for a good decade at least. Right. So what's going on, Right. That you can't even earn the ROE of 9%?

So that to me is the troubling factor, right. Now, if they are turning profit because, right, they're doing services more efficiently, etc. That is what we wanted them to do, right? Recall before PBR, right, the PUC did a management audit on Hawaiian Electric, right?

And that did result in changes, right? And they've been operating as such. And that could be the result of, I know for one instance during the pandemic, right. My neighbor is putting up solar on a townhome and I ask him, like, how long is it taking, right? And X.

But then we also have a neighbor, right, who you know, has a friend and even the former Chair had a neighbor that was released from HECO because of the audit, right? So we may have put them also in this situation of, right, not being able to keep up. Of course, right.

When you do the audit, it's at that time, right? It doesn't kind of foresee what might be coming in in the future or et cetera, right. You're doing it at the time. And I will say, right, the President at that time incoming was Scott Seu. He had to deliver, right? Cutting people, streamlining their organization.

Now if those profits that you talk about is a result of that, right. I gotta give credit to the company, right. Because they found a way to stop the bleeding, if you will. So yes, it does concern me, right. But at the same time, I could take in everything, right? I just don't focus on one item, right. My job to make sure all of our utilities is healthy is to look at the entire pie.

Just on the issue of cost cutting. To my knowledge, HEI has 40 very high paid employees. They sold the bank 90% of it. They are in the midst of selling Pacific Currents. And to my knowledge, not one person has been laid off. All 40 high priced employees at HEI are still there.

I know HEI is different from from HECO, but the profits from HECO go to pay for these folks and what little might be left over for dividends. So I appreciate where you're coming from, Leo. It's just that we as a community need to ensure HECO remains solid and viable.

But at the same time you really need to pay more concern onto the consumers and the public and how much they're paying into this monster of an organization that has shown that they really don't cost cut. There should not be 40 people working at HECO today when they get rid of their bank and are getting rid of Pacific Currents. It's same old, same old. And that's what the public doesn't want. We need different cost cutting and more reliable power in the future.

Senator McKelvey. Well, so... Come on up, Jim. Oh, Leo. You guys should stay.

Well, yeah. Just I think... Jim Kelly. I'm a Vice President of Government Community Relations like Hawaiian Electric. Thank you. Mentioned 500 million. I think you're talking about revenue into the company. The company lost $1.2 billion last year. That was our profit, $1.2 billion loss. So I just wanted to have that correct for the record.

That has a lot to do with fire.

Yes, it absolutely does.

So we're talking about rates where the public is paying for power and is always disruptive and is three times the national average. So I understand you have costs there that were borne by decisions made by HECO. But I'm talking about for the ratepayers.

They see a huge increase in the amount that they're paying and the amount of revenues that are given to HECO. And I just find it astonishing. I mean you're almost at the top of the spear at HECO and you don't even know what the profit numbers were. You don't, you didn't want to share any of the numbers. You told me like go look it up in your annual report.

I didn't have it in front of me as you apparently do.

How could you not know that? Those are easy numbers. You should know what the revenues are, what the costs are, and what the profits are. That should be a top of mind for someone at your level. The fact that you don't want to share it or you don't have it is...

I just shared it. It's a $1.2 billion loss. I also want to point out that yesterday we announced that rates for Oahu rate payers are going to go down as a result of a new oil contract that we just negotiated with Par Hawaii.

The rebasing process, can you ask for a reduction? In your rebasing case that you have.

We didn't have to wait for the rebasing for that. We negotiated a new contract with Par and it takes effect immediately. So everyone's rates on Oahu are going to go down a little bit. It's not, you know, major, but it's something. It's going in the right direction that you're talking about. It isn't, we don't have to wait around for the rebasing for that to take effect.

Right. And if you get securitization, the prices are going to go up to eclipse the savings that they're seeing in the near future?

I wouldn't say that. I don't know that.

If I may. Mr. Kelly, is it fair to assume that HECO will come in and ask for a rebasing?

Well, I think the rebasing process has already been established. I think the question is whether we're going to come in and say, hey, we want a 10% increase or we want a 0% increase.

Will HECO apply for a rebasing?

I wish our Regulatory VP was here today. He's out sick. He couldn't make it. So I'm having a kind of riff here.

Okay, but my question is if it's fair to assume, now that the PUC has made their determination, it's subject to fleshing out the details of what this rebasing is going to look like. But I guess at some level, procedurally it's going to take the form of a traditional cost of service proceeding.

So now that you have that level of clarity, you know, the PUC Chair has said multiple times here today that some of their decisions are dependent on a HECO application. Is it fair for the public to assume that HECO will come in in 2025 and request a rebasing?

Yes.

Okay. Is it fair to assume that in that rebasing request that HECO will ask for an increase in rates?

No.

No? Okay. Okay.

Because we don't know what the numbers are yet.

All right, thank you.

You're welcome.

Any other questions? Okay. I have... Senator McKelvey.

No, this is back to PUC and the Consumer Advocate, actually. Yeah, come on up. So I just, I know a lot of people watching this who don't really understand the PUC. So I've kind of, kind of make it simple possible for my own little pea brain as well as for a lot of people who aren't.

So I heard earlier that HECO can come to the, under this procedure, can come to there with their proposal. Right. Of what they want. Other interveners say, other entities can come in too and suggest what they think would be fair for them and for everybody, or what they think. Correct. The procedural.

So does the Consumer Advocate also intervene as well? And has the Consumer Advocate presented its own construct or solution that puts the consumers first in the final equation?

By law, the Consumer Advocate is an automatic party to any proceeding and they can propose whatever they want to propose.

Have you proposed or what are you planning to do or in anticipation of this, to put the consumer's position forward solely and unilaterally and not other entities interest or other interest policy wise?

The position we've taken is that if they're going to be allowed to rebase, there needs to be substantial scrutiny of what those costs are. And that was the point I was trying to make earlier in my presentation.

And as well with the performance component of this, what's currently missing and should be... We have metrics, but there's no tie in directly there's performance incentive mechanism. But a company could say I'm just not going to go after that performance incentive mechanism.

There needs to be some rethinking of how we utilize those performance incentive mechanisms and we support greater stick approach so that the companies will respond accordingly.

Think that's where the Chair was trying to go with the stick analogy.

We have we don't need carrot. We eating cabbage on the other end of the garden.

Yeah. Carton full of carrots. You have a lot of rabbits. But not necessarily keeping the wolves out. Righ.

Right. And making sure that those numbers with key performance metrics. And I mentioned, I don't know if I mentioned specific in the end. But to the points raised earlier, customer bills are one thing that we can monitor. If they're going up, there's a problem.

If we, and we taking that into account with reliability metrics, which should be improving as well as safety incidents. So refining safety metrics to understand and make sure that there aren't ongoing safety concerns.

Do you also look at inadvertent cost shifting? I brought up the DEI example because it's happening. If you're wealthy, you own your own house, you get solar, you're not paying your bills anymore, you're getting a credit. If you're poor and you're working hard and you live in an apartment, you end up holding the bag. Have you guys looked at this and so far as the effect this could have going forward?

We haven't done a direct quantification. But these are points that we are making in every filing. And to the point of using renewable energy as the method, the cost effective method, it's imperative that rates that are set in those programs or that we're paying are more attractive than what we would otherwise be paying for fossil fuel.

Absolutely. Thank you, Chair.

Senator Richards.

Thanks, Chair. Okay, so I've been sitting here listening to the back and forth, and I get it. Ultimately what we're trying to establish is fair and equitable going forward for our consumers. Long and short of it. Recognizing that we have a unique situation compared to the continental US and in our power grid.

I do have some empathy for Hawaiian Electric because in my mind, I wasn't here when this law was passed. And so I'm looking at it from the outside in and trying to understand that. It seems like we have a moving target. I think Chair pointed out we have a chicken or the egg.

We're not really going to set up the metrics until we have an application, but we won't have the application until we have the metrics set up. And I don't really get that. And I know that you're saying, well, it's kind of, kind of, kind of. I'm thinking, as I understand this, you have the authority to set up.

This is what we're going to do, both our carrots and our sticks. But we're not doing that. And I think under the authority we should be able to get that done and be pretty clear about how we're going to do it. Now there's got to be some massaging, and I get that at some point.

But it's, we're adrift right now and we're not really stepping forward with that. And so I guess my question... And Consumer Advocate, weigh in on this too. Is I think PUC has to say this is how it's going to work. Consumer Advocate says, okay, I see a problem here, but I think we can work on that.

And then we wait for the application. But saying that, well, we think we might, we do, we'll see what the application. I don't think that's the way to do that because there's no metric or guideline for this step in. And I, we all want lower rates. We all do, I get that. But...

And having a performance based rate, which is essentially what we're trying to say we want to do. But we're not doing that because we're not setting up any performances. And like you said, what do you want to focus on? To paraphrase a little bit, is it safety?

Then we know we're going to have power interruption because we have the immediate shutdown. I get that. But I think PUC has to say this is what the metrics are going to be of the 11 or 12 or whatever it is.

Maybe you prioritize a couple, but then you go forward and you set that stake in the sand and then you wait. But this nebulous kind of floating around, I don't think we can actually step forward. So are you prepared to do that? This is now is the question. Are you prepared to do that?

Okay, I'm going to take it in two parts. So in order to do the rebasing. Yes. We will come up with the criteria by which we're going to do that process. Now that's separate from the PBR, the carrots and sticks. Okay. So there's that process. Right. Hawaiian Electric will submit their application, whatever that item is in there.

We're adjudicating that particular thing, right. To come up with what is the new base rate going forward. Right. That we will now use in PBR performance base and take a look at those items. And like I shared with you, right. I want to take a look at reliability, right.

That's our first and foremost, at least for me as a Commissioner. Safety, certainly. Right, around wildfire. We're actually looking at the wildfire plans that have been submitted by Hawaiian Electric as well as KIUC. Right. We're going to have a proceeding, separate proceeding for KIUC. Those plans, whatever we approve, right.

In my mind, that's what they're going to use securitization for, because that's the nexus, right? It's this plan that they submitted and what are they going to do in that plan? So we're reviewing that, right.

If they're going to use securitization, which is how the law is written, to implement some of those things in the plan, we know what the dollar limit is, right? 500 million that was set by the Legislature. So to me, in terms of the plan and then how it relates to PBR, right.

I'm going to look for most bang for the buck, right. And look at, you know, if HECO in their plan is short, right. 390-400,000, 400 million. Can I look for other, right, kind of related items that could help bolster the grid, etc. for the extra 100 million? Right. If not, then they're only going to borrow 400 million of the 500 million, right. So, but as I applied that to PBR, right. We can have an...

Not so much an incentive, but performance measure that says, hey, remember those things that you're going to do under securitization and under the plan. We want to see you do X amount in five years. And let's measure you on that. So that's one example, right. I agree with Mr. Angelo.

I think we need to look at in this, go around the sticks, the true sticks, right. Right now, the stick Is if HECO does not want to go after an incentive, they've left that, they left that incentive on the table. Right, that's the stick right now. And that's why...

But they're monopoly, so the only one that's going to take it. So there's not really a stick.

Correct, correct. But they're leaving it on the table. Right. Because it could have earned. Yeah, I get that. I get that. But that's why. Right. I want to look at the stick. What is the penalty? What is the true penalty if you don't meet doing all these projects for wildfire mitigation in five years? What is the penalty if you don't hit safety requirements? What is the, whatever reliability. Whatever reliability level we want to set? What is the true penalty?

Okay, I think I see where you're trying to go with it, but you're the PUC. You establish it now and then we change it and fix it later if we need to. But to me, it's really nebulous and it's not really going anywhere.

And speaking from a business side, if you have a metric that is a potential benefit of, say, $100 million, but it's going to cost you $95 million to get that $100 million. As a business, I would have to look at and say, is this worth it or is my time better spent evaluating something else?

The problem that I'm gleaning from all of this is we're still in this kind of floating area of, well, we're kind of waiting to see. From my position, I think what we need to do is say what we're going to do. This is the parameters going to work and come back and fix them later.

At least we know we're all shooting at the same target as opposed to kind of saying, I think we're going to go this way. And yes, I agree that the base rate is going to be different from the PBR, sort of. But I don't think that should be even part of the conversation If you're looking at the PBR.

That'll happen separately in my mind because I think these are two separate situations. So let's get after it. Just get her done. So, because that's what... And again, I wasn't here in this building when this was put forth, but I can appreciate the concerns on both sides.

But unless we actually put the stake in the sand, we're not going to move forward and we're still going to be kind of drifting along. If nothing else drives me nuts is just drifting along. Make a decision and fix it if we got to. So thank you, Chair.

I have a question about that though.

So if I can, I'll ask the other Members if they have questions. Okay, Senator.

I've been eating the mic over here. You know, to that point. Right. I mean, I think order of operations does matter. Right. While these are different approaches, different pieces of the puzzle, one definitely is inextricably tied to the other.

So, for example, if we're moving forward with, let's say the wildfire piece, right, and we're going to come back and do all the performance based metrics separately or after. Or we're moving ahead with rebasing, whatever that's going to look like in this iteration right now and come back to the other stuff later.

The utility then has all the financial incentive in the world, for example, to capitalize off of cap x, not knowing what's going to change in the future. Even if you have a $500 million limit on the Wildfire Fund for example, they come in and say, all right, we're going to do all the Maui wildfire stuff, like $500 million worth, it's all necessary. Spend it all, which you guys would approve. And at the end of that then come back and say, okay, also navigate to the other islands. So come jack things up some more and we can do the rest of that.

Whatever the situation is. The reason for a performance based metric of some sort and getting that set now as part of that whole conversation for the future in the full universe of all the utilities revenues is that when it comes to questions like this, if the incentives right and the carrots and sticks are aligned right, then the utility can come in and say, all right, we actually don't need $500 million of stuff on Maui right now because maybe we only need like 250.

We don't have the financial incentive to just keep capitalizing off that automatic return for every dollar we spend, so we're not going to gold plate the system. And that is definitely still an issue. Because we just had a hearing here in this building with the utility during session, maybe three months ago, four months ago. Where in the wildfire presentation, Colton came in and said, we're looking at deploying all these sensors across the grid and everything else to measure what's happening where.

And what we had asked was, okay, but are these the same kinds of smart sensors that other utilities are currently using which can provide feedback showing, for example, that actually the amount of transmission infrastructure you have is way more than necessary to support all the expanded grid load and deal with all the other stuff that otherwise you'd have to come into the commission to spend money and charge ratepayers to put in place.

And his answer was, yes, we're aware of those sensors. These are not those. Why would you not take that into account? Because there's no financial incentive to do so. So if there's clear examples of this happening right now, and if there's clear incentive because a bunch of money is going to be put into all these different plans which could Jack up rates significantly to ratepayers, why wouldn't we look at all the performance based metrics and align all those incentives so the utility has an incentive to do what makes the most sense rather than just what will get them the most revenue.

Okay, I would say... Okay, we can certainly do that. So what we would be doing is cutting short PBR 1.0, right. If we were going to reset it now, reset all of the PBR metrics and the like, right. Unilaterally by the PUC. Right. And this is, this goes back.