The Utility of the Future

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2 The Utility of the Future is the Unifying Entity that connects the needs and wants of the User with the core values of the Community in the most Efficient and Sustainable way possible. is responsible for connecting the delivery of energy related services to the core values of the community: Economic Development Economic Competitiveness Quality of Life Energy localization framework: democratization, decarbonization and decentralization

3 ... Hawaii s electric utilities will increasingly be required to: Integrate large quantities of utility scale, primarily variable renewable energy resources onto the transmission system; Add increasing amounts of customer-sited distributed generation unto the distribution system Docket No , Order No Exhibit A: Commission s Inclinations on the Future of Hawaii s Electric Utilities, April 28, 2014 PUBLIC UTILITIES COMMISSION 3

4 ... [the] essential functions of Hawaii s electric utilities: Key Business Function #1 System Planner and Operator of High Renewables Grids Integrated grid operation and fuel procurement IPP tolling model for new generation Key Business Function #2 Modern Transmission-and- Distribution System Integrator Energy Delivery Docket No , Order No Exhibit A: Commission s Inclinations on the Future of Hawaii s Electric Utilities, April 28, 2014 PUBLIC UTILITIES COMMISSION 4

5 Overview Why Hawaii Must Take Action Hawaii s Energy Policy What Compelled Hawaii PUC To Take Action Technical & Economic Challenges of Distributed Energy Resources Hawaii s Investor Owned Electric Utilities How The Hawaii PUC Is Moving Forward PUBLIC UTILITIES COMMISSION 5

6 Why Hawaii Must Take Action Hawaii s Energy Policy PUBLIC UTILITIES COMMISSION 6

7 Most Isolated Population Center on Earth Russia: 5,312 mi Alaska: 3,022 mi Canada: 3,550 mi China: 5,251 mi Japan: 4,036 mi U.S. Mainland: 2,471 mi Taiwan: 5,285 mi Indonesia: 6,276 mi Papua New Guinea: 4,492 mi Hawaii Isolated island state No indigenous fossil fuels Rich in natural energy resources Mexico: 3,397 mi Costa Rica: 4,822 mi Colombia: 5,551 mi Ecuador: 5,450 mi Fiji: 3,157 mi Australia: 5,205 mi Chile: 6,698 mi New Zealand: 4,613 mi PUBLIC UTILITIES COMMISSION 7

8 Fuel Oil and Diesel Remain Primary Fuels for Electricity Source: Energy Information Administration

9 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 Retail Electricity Prices-All Sectors (cents/kwh) Oil Dependency Results in High Energy Prices US HI x US Average Source: Energy Information Administration

10 Breakdown of an Oahu Customer s Bill

11 Energy Cost Share of Gross State Product (%GSP) 12% High Energy Costs have Significant Economic Impact Unpredictable energy costs greatly impact Hawaii s economy 10% 8.8% 9.4% 9.6% 10.4% 8.5% 10.9% 10.6% 8% 6% 6.5% 6.5% 6.0% 6.9% 7.7% 7.2% 4% 2% 0% Source: Research & Economic Analysis Division, DBEDT Equates to $5+ billion per year spent on imported oil 11

12 The Statutory Policy Drivers Renewable Portfolio Standard 15% of electricity generation from renewables/efficiency by % of electricity generation from renewables by % of electricity generation from renewables by 2030 Energy Efficiency Portfolio Standard 4300 gigawatt hours electricity use reduction by Public Utilities Commission set a cumulative goal of 1.5% electric use reduction per year Act 234, SLH 2007 Addressing Greenhouse Gas Emissions Reduction Establish and cost-effectively achieve greenhouse gas (GHG) emissions reductions and limits at or below the inventory of Hawaii s greenhouse gas emissions estimates of 1990 emissions levels by January 1,

13 Hawaii Clean Energy Initiative State-Federal Partnership to Accelerate System Transformation The goals are: Achieve a 70% clean energy economy for Hawaii within a generation Increase Hawaii s energy security Capture economic and environmental benefits of clean energy for all levels of society Foster cooperation and partnerships and demonstrate innovation Build the workforce of the future Serve as a model for the US and the world

14 RPS and EEPS Levels State Sustains Progress in Meeting Clean Energy Goals 40% 34.4% 30% Renewable Generation Increase Energy Efficient Improvement 28.2% 24.0% 18.2% 20% 10% 15.8% 8.9% 6.9% 17.8% 18.8% 9.4% 9.5% 8.3% 9.3% 20.4% 11.9% 9.5% 10.9% 12.1% 13.7% 14.5% 16.2% 0% * Source: Renewable Portfolio Standards Status Reports, (Hawaii Public Utilities Commission) * KIUC RPS and EEPS not included for These figures to be included upon KIUC s Annual RPS Status Report to the Public Utilities Commission.

15 State On Track to Meet Near-Term RPS Targets PUC RPS Report can be found: content/uploads/2013/04/2013-puc-rps- Report_FINAL-w-Appnds.pdf Renewable energy projects saved ratepayers over $60 million in 2012 Current savings vary between roughly 1% to 16% of each utility s total system cost KIUC and HECO Companies can achieve 2015 requirement (15%) Assumes existing renewable generation and projects under construction KIUC and HECO Companies are likely to achieve 2020 requirement (25%) Assumes reasonably expected amounts of currentlyproposed projects come online KIUC and HECO Companies may achieve 2030 requirement (40%) Achievement depends on overcoming several challenges and uncertainties

16 Significant Untapped Efficiency Potential Remains Source: PUC EEPS Report, 2013 PUBLIC UTILITIES COMMISSION 16

17 What Compelled Hawaii PUC To Take Action Technical & Economic Challenges of Distributed Energy Resources Hawaii s Investor Owned Utilities PUBLIC UTILITIES COMMISSION 17

18 Hawaii Electric Systems 4 electric utilities; 6 separate grids Kauaʻi Kauai Island Utility Cooperative 27 MW PV (24 MW in development) System Peak: 78 MW Customers: 32,700 Oʻahu Maui Electric Maui: 60MW PV / 72MW Wind System Peak: Maui 200 MW Lana i: 1MW PV System Peak: Lana i: 5 MW Moloka i: 1.2 MW PV System Peak: Moloka i: 5.5 MW Customers: 68,000 Hawaiian Electric 221 MW PV / 100 MW Wind / 69 MW WTE System Peak: 1,100 MW Customers: 300,000 Molokaʻi Lanaʻi Maui Hawaiʻi Source: Hawaii Natural Energy Institute Hawaii Electric Light 39 MW PV / 30 MW Wind / 38 MW Geothermal / 16 MW Hydro System Peak: 190 MW Customers: 81,000

19 Hawaii Distributed Solar Market Has Doubled Since 2005 Until Recently Distributed Renewable Energy Systems Installed Total Capacity of Systems Installed (kw) 20,000 18,000 16,000 14,000 12,000 10,000 HECO HELCO MECO KIUC 40,717 Distributed Renewable Energy Systems Total MWs Installed Statewide Approx. 10% of residential customers have installed PV Aggregate capacity of DG equals largest unit on each island 79,263 kw 12, ,081 kw 18, , , ,000 80,000 8,000 6,000 33,230 kw 5,516 60,000 40,000 4,000 2, ,984 kw 7,213 kw 2,190 4,663 kw 1,196 kw 1, ,000 0 Source: Net Energy Metering and Feed-in Tariff Reports, 2013 (Public Utilities Commission)

20 Market for New PV Projects has Stalled Since Changes to Interconnection Process September HECO instituted new interconnection rules for high penetration circuits Market down considerably leading to public criticism of utility practices April 2014 PUC ordered HECO Companies to file Distributed Generation Interconnection Plan (DGIP) in 120 days

21 Current Grid Limits have Slowed Interconnection Significantly Source: Hawaiian Electric Co. Over last 2 years utility has increased distribution circuit cap to current level of 120% of daytime minimum load (DML) About 20-25% of state-wide distribution circuits have exceeded the current circuit capacity limits PUBLIC UTILITIES COMMISSION 21

22 Average Day in March: Oahu, Scenario 8 Average Day in March: Oahu, Scenario 2 High Renewable Penetration Low Renewable Penetration 290 MW ramp in 3-hours 440 MW ramp in 3-hours 183 MW ramp in 3- hours 210 MW ramp 250 MW ramp in 3- in 3-hours hours Leads to curtailment Need for improved flexibility: Lower turn-down capability Ability to cycle during the day Flexible load/time shifting New tools for ancillary services

23 Source: KIUC Energy Storage Request for Proposals

24 ... the HECO Companies appear to lack movement to a sustainable business model to address technological advancements and increasing customer expectations... Without such a long-term, customer focused business strategy, it is difficult to ascertain whether HECO Companies increasing capital investments are strategic investments or simply a series of unrelated capital projects to expand utility rate base and increase profits appearing to provide little or limited long-term customer value. Docket No , Order No , Exhibit C Commission s Observations & Perspectives May 31, 2013 PUBLIC UTILITIES COMMISSION 24

25 The IRP Action Plan appeared to be, in part, a series of unrelated capital projects without strategic focus on the clear issues facing the utility, and did not indicate further progress towards a sustainable business model. More recently, the HECO Companies proposed 2014 capital expenditure program also appeared to be comprised of unrelated capital projects without strategic focus and of questionable long-term customer value. Docket No , Order No Exhibit A: Commission s Inclinations on the Future of Hawaii s Electric Utilities, April 28, 2014 PUBLIC UTILITIES COMMISSION 25

26 How Is The Hawaii PUC Is Moving Forward PUBLIC UTILITIES COMMISSION 26

27 April 28, 2014 In four major orders PUC directed the HECO Companies to develop the following action plans: Integrated Demand Response Portfolio Plan (IDRPP) directed the HECO Companies to review their current demand response programs, develop detailed estimates of demand response potential, and consolidate their programs into a single integrated portfolio Power Systems Improvement Plans (PSIP) Distributed Generation Interconnection Plans (DGIP) ordered the HECO Companies to develop and implement major improvement action plans to aggressively pursue energy cost reductions, proactively respond to emerging renewable energy integration challenges, improve the interconnection process for customer-sited solar photovoltaic ( PV ) systems, and embrace customer demand response programs PUBLIC UTILITIES COMMISSION 27

28 July 28 IDRPP was filed August 7 PUC invited public comments on IDRPP Sept 8 deadline for public comments on IDRPP August 7 PUC opened Docket No to review PSIPs August 21 PUC opened Docket No initiating investigation into DER Policies Sept 12 PUC transfers PSIPs from various dockets to Docket No Sept 12 PUC transfers DGIP to Docket No Sept 12 PUC invites public comments on PSIPs and DGIP October 6 Deadline for Public Comments on PSIPs and DGIP PUBLIC UTILITIES COMMISSION 28

29 What does energy system transformation look like? The regulatory perspective: Requires technology and economics to inform and shape energy policy and regulation to provide clean, safe, reliable and affordable electricity to achieve environmental and societal goals within a regulatory framework meeting the following objectives: Develop a diverse portfolio by encouraging prudent investments in and optimizing all assets, whether utility or non-utility, centralized or distributed, that will bring efficient and cost-effective benefits and value to the electric system to serve the public good Maximize the integration of cost-effective renewable energy resources while protecting the electrical system performance and quality by allocating the fixed cost necessary to maintain and enhance the electric system fairly Provide more options for customers to manage their electricity bills and to reduce cost by ensuring accessibility, fairness and opportunity for all ratepayers to benefit from clean energy policies

30 In advancing the public interest, the commission shall balance technical, economic, environmental, and cultural considerations associated with modernization of the electric grid, based on principles that include but are not limited to: (1) Enabling a diverse portfolio of renewable energy resources; (2) Expanding options for customers to manage their energy use; (3) Maximizing interconnection of distributed generation to the State's electric grids on a cost-effective basis at non-discriminatory terms and at just and reasonable rates, while maintaining the reliability of the State's electric grids, and allowing such access and rates through applicable rules, orders, and tariffs as reviewed and approved by the commission; (4) Determining fair compensation for electric grid services and other benefits provided to customers and for electric grid services and other benefits provided by distributed generation customers and other non-utility service providers; and (5) Maintaining or enhancing grid reliability and safety through modernization of the State's electric grids. Act 109, Session Laws of Hawaii 2014 PUBLIC UTILITIES COMMISSION 30

31 From the Hawaii PUC s perspective what are our biggest challenges High cost of electricity and its impact on Hawaii s residents and businesses The pace and scale of DG penetration/new technologies, slowness of the business model of the electric utility to adapt/current culture within the utility The regulatory process is slow and deliberative Maintaining political will Where to make our best infrastructure investments for the future in an evolving environment Current tax credits subsidizes most expensive options Building the capacity within the PUC to take on all these challenges

32 What can the Hawaii PUC share from its experience in moving towards a clean energy transformation? Do not focus solely on the generation side of the equation, a transformation requires a multi-prong approach Adopt a no-regrets strategy moving forward (reduce demand and carefully scrutinize new capital investments) Energy efficiency, building codes, demand response, DSM Maximize and optimize your existing low cost carbon generators and renewable generators What s needed are technical and affordable solutions, therefore the regulatory process must accommodate problem solving in a less legal and political way with good staff and resources When decoupling electricity sales from revenue requirements include performance standards (moving from traditional ratemaking to performance based regulation) Lay the ground work for the business model for the electric utility of the future

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