On March 29, 2019, HAWAIIAN ELECTRIC COMPANY, INC. submitted its annual Revenue Decoupling Mechanism filing to the HAWAI’I PUBLIC UTILITIES COMMISSION (PUC). The Revenue Decoupling Mechanism is part of a regulatory model designed to encourage energy conservation and increase integration of renewable energy resources onto the utility’s grid by delinking utility revenue from electricity usage. The Revenue Decoupling Mechanism filing encompasses a Revenue Balancing Account (RBA) provision and a Rate Adjustment Mechanism (RAM) provision.
Under decoupling, the PUC approves in a formal rate case a revenue level needed to recover the investments and expenses the Company requires to provide electrical service to its customers. As electricity usage levels vary between formal rate cases, an RBA allows the utility to still recover the costs for providing those services, but not earn additional profit from higher sales.
Rates increase or decrease with the RBA shortfall or over-collection. Between rate cases, the Company makes capital improvements and experiences higher costs due to inflation as well as new initiatives. Therefore, in addition to rate fluctuations due to the RBA, the RAM allows the Company to increase rates up to a factor of inflation to pay for some of the cost increases. If the Company earns more than the authorized Return on Equity (ROE) for the prior year on a ratemaking basis, the Decoupling Mechanism requires the Company to share its earnings with customers through an Earnings Sharing Mechanism. The utility is not permitted to use the Earnings Sharing Mechanism to increase revenues to make up the difference. For year 2018, the utility’s ratemaking ROE was 7.96%, less than its authorized ROE of 9.50%. The RAM calculation was determined pursuant to the joint decoupling proposal submitted by the Hawaiian Electric Companies1 and the State Division of Consumer Advocacy and approved by the PUC on August 31, 2010. On March 31, 2015, the PUC issued Order No. 32735 which directed the Companies to make certain modifications to their decoupling mechanism and apply these modifications to the Companies’ 2015 decoupling filings and future decoupling filings going forward. Among the modifications, the PUC amended the RAM Revenue Adjustment to be the lesser of (a) the RAM Revenue Adjustment determined according to “existing” tariffs and procedures or (b) a RAM Revenue Adjustment Cap (RAM Cap). The RAM Cap is based on the target revenues determined in accordance with the RBA and RAM tariffs times the cumulative annually compounded increase(s) in the gross domestic product price index for intervening years, adjusted to include applicable revenue taxes.
If the Revenue Decoupling Mechanism determines that the annual utility revenue should be decreased or increased, the difference will be reflected in a per-kilowatt-hour rate adjustment credit or charge during the period from June 1, 2019 to May 31, 2020. This would replace the existing RBA Rate Adjustment.
According to the Revenue Decoupling Mechanism calculations provided in the March 29, 2019 filing, Hawaiian Electric Company’s revenues would be increased by $1.949 million from the amount currently recovered through the existing RBA Rate Adjustment which has been reflected in customer bills since June 1, 2018. The Revenue Decoupling Mechanism is a cumulative mechanism and is reset at the next general rate case’s interim or final decision and order. If approved by the PUC, this will result in an increase of 0.0406 cents per kilowatt-hour for each customer class reflected in the RBA Provision tariff.
If approved by the PUC, a current typical residential monthly bill for a household using 500 kilowatt-hours would increase by $0.20, effective June 1, 2019. The actual impact of the rate adjustment, if approved, will vary by customer type and actual electricity usage.
For more information regarding the Revenue Decoupling Mechanism, please visit www.hawaiianelectric.com or contact:
Hawaiian Electric Company, Inc.
P.O. Box 2750
Honolulu, HI 96840-0001
808-543-5670
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1 The "Hawaiian Electric Companies" are Hawaiian Electric Company, Inc., Maui Electric Company, Limited, and Hawai’i Electric Light Company, Inc.
(SA1189888 4/14/19)
