Energy is not an easy topic to grasp. All movements in the universe are powered by energy. Energy is needed for all human activities. Our energy policies cause oil wars, air pollution, and climate change.
The Hawaii Public Utilities Commission (PUC) was established in 1913 to regulate electric and gas utilities. In its first annual report issued in 1914, the PUC stated that the public does not understand us. This remains true today.
Compounding the problems are competing values, slogans, buzzwords, conspiracy theories, and misinformation that confuses the public.
In this article, Life of the Land examines seven controversial topics: HEI bonuses, securitization, bailing out the utility, high electric bills, sustainability conflicts, firm renewable energy, and regulating utility revenue.
HEI Bonuses
HECO and HEI executives received lucrative bonuses following the Maui fires. This is unacceptable. Public pressure and media coverage is needed to reign in this greed.
Some people have objected to how HEI allocates its profits and insisted that some money be returned to HECO to lower rates. This approach is not legal.
The Public Utilities Commission determines a reasonable rate of return for regulated electric companies. HECO is inefficient and does not achieve its allowed rate of return. HECO gives its profits to HEI, its parent company.
HEI is a non-state regulated holding company owned by shareholders. HEI gets HECO`s profit and splits the money between taxes, investments, staff salaries, executive salaries, and shareholder dividends. Non-shareholders cannot order the shareholder owners to return money to HECO to lower electric bills.
Securitization
HECO`s greed led to negative conversations about securitization. HECO proposed Christmas tree bills in 2024 and 2025 that would fund bailing out the utility for wildfire expenses and would create a ratepayer financed $1,000,000,000 wildfire mitigation fund.
The issue of securitization can be separated from gifts of greed.
Like people who borrow money to buy cars and houses, HECO borrows money to make investments. Lower credit ratings equate to higher interest rates. In the case of HECO, lower credit rating means higher electricity rates.
There is an alternative for all businesses with bad credit that also has a steady stream of future revenue.
The utility goes to the bank and commits 20% of future ratepayer funds to undertake needed upgrades. The securitized funds are guaranteed to go to the bank even if HECO goes bankrupt or is sold.
Because ratepayers will continue to need electricity, and will pay whoever owns HECO, the bank agrees to a lower interest rate.
The Legislature limits what these securitized funds can be used for.
The Public Utilities Commission will require HECO to prove that securitization is the cheapest way to borrow funds.
Bailing Out the Utility
HECO wanted ratepayers to pay for the utility`s wildfire expenses. The public objected. The idea is dead.
The carpenters’ union wants a lucrative contract for its employees, so it launched a media blitz against “bailing out” HECO. This misinformation campaign is based solely on greed.
The cost of the wildfire is $1.99 billion pre-tax which is $1.5 billion post-tax. HEI raised money to cover the wildfire costs by redirecting profits, selling assets (American Savings Bank and Pacific Current) and issuing new shares of shares of stock that diluted the value of older stock.
Shareholders took a major hit due to wildfire. HEI stock sold for $39 before the fire and paid a dividend of $1.44 per year. Today the shares are worth less than $10 (75% loss) and there is no dividend.
High Electric Bills
Kauai has the lowest electricity rates in the state. All HECO, MECO, and HELCO rates are higher. If all Hawaii residents paid the Kauai rates for electricity, then Hawaii would be #1 in electricity rates in the nation and #48 in usage.
Hawaii residents would have the highest electricity rates in the nation, but residents of only two states would use less electricity each month.
Electricity bills are based on rates multiplied by usage.
Kauai`s electric bills are almost 50% greater than the national average.
The major difference between Hawaii rates and the average national rates are two-fold: Hawaii`s high cost of living and the type of non-renewable fuel used to generate electricity: petroleum products in Hawaii and nuclear, gas, and coal on the continent.
Sustainability Conflicts
The path to achieving a 100% low greenhouse gas renewable energy future has been very uneven in its applications. This non-uniform approach to sustainability is leading to sharp differences in perceptions on how to move forward.
Rooftop solar has vastly increased the use of renewable energy in the state and decreased the use of fossil fuels and greenhouse gas emissions. Most of the rooftop solar and energy storage systems have been installed in single-family homes occupied by the owners.
Rural communities have seen the proliferation of solar and wind farms.
Electricity rates are rising due to the need to harden the grids to withstand extreme weather events.
Compounding all of this is the potential monetary gain by competing for-profit energy companies hawking different solutions.
Firm Renewable Energy
The Hawaii Natural Energy institute (HNEI) is an organized research unit of the School of Ocean and Earth Science and Technology (SOEST) of the University of Hawai’i at Mānoa.
HNEI analysis found that solar, wind, and lithium batteries can technologically meet all the electricity needs of the grid. The problem is that once intermittent energy resources reach about 70%, curtailment rapidly increases, causing the price of electricity to skyrocket.
Some solar enthusiasts challenge this, but none of them have provided rigorous models analyzing this issue.
Lithium batteries can smooth out sub-second variations, minute-to-minute fluctuations, and day to evening shifts.
But unpredictable chunkiness occurs that may require some or most of the energy to come from firm renewables for a few hours to a few days.
Each firm renewable alternative has significant problems, but each is more cost-effective than relying only on wind, solar, and storage. Firm renewable alternatives include biofuels, geothermal, and hydrogen.
Regulating Utility Revenue
The Public Utilities Commission regulated the HECO Companies revenue through a cost-of-service regulatory scheme where rates were set to enable the utility to cover most of its costs in addition to earning a return on the investments.
The utility could manipulate the system. Higher sales and increased investments lead to more revenue and greater profit. That is no longer the case.
Performance-Based Regulation (PBR) started in June 2021. The HECO Companies receive incentive payments when they meet state goals, higher payments when they exceed state goals and are penalized for not meeting state goals.
HECO is incentivized to find ways of decreasing costs without impacting service. If HECO finds ways of doing this, then the money saved is split between the utility and the ratepayers.
The complexity in developing this new approach laid in determining which state goals should be adopted, what the range of incentives should be, and how savings should be split in the first five-year cycle.
The PUC proceeding involving several intervenors is now reviewing the successes and failures of the first PBR cycle (2021-26).