Hawaii Governor David Ige signed a bill into law Tuesday that reforms the century-old electric utility business model, to better align utility ratemaking processes with the integration of renewable energy resources.

The Ratepayer Protection Act (SB 2939) sets a 2020 deadline for the state Public Utilities Commission to establish different incentives and penalties that link electric utility revenues to the utility’s success at hitting various customer-focused performance metrics. The list of metrics includes electric service reliability, reduced volatility of electric rates, timely execution of competitive procurements, the rapid integration of renewable energy sources, and the quality interconnection of customer-sited resources such as solar and battery storage.

"This bill is a big win for local consumers who will pay less for better electric service with more options for home solar and batteries, and it is a responsible step forward helping utilities transition to a sustainable business model that can survive disruption in the energy sector,” said Hawaii State Representative Chris Lee, Chair of the Committee on Energy and Environmental Protection, in a statement.

According to the Hawaii Solar Energy Association (HSEA), the signing of SB 2939 makes Hawaii the first state to have performance-based ratemaking mechanisms in statute. Hawaii is currently also the only state in the nation with a target to achieve 100 percent renewable electricity, with a deadline set for 2045.

“Performance-based ratemaking is where the rubber meets the road for bleeding-edge energy policy,” said HSEA Executive Director Will Giese. “If the 2045 renewable portfolio standard was the vehicle to a clean energy future, then [performance-based ratemaking] is the engine that will get us there.”

In passing the bill, the lawmakers expressed concern that the traditional way electric utilities get paid would result in higher costs to modernize the electric grid, due to a focus on utility-owned projects.

"The legislature is concerned that the existing regulatory compact misaligns the interests of customers and utilities because it may result in a bias toward expending utility capital on utility-owned projects that may displace more efficient or cost-effective options, such as distributed energy resources owned by customers or projects implemented by independent third parties," the bill preamble states.

The preamble also notes that some utility performance incentives are being considered in existing dockets at the PUC. That includes a docket (No. 2018-0088) recently opened to “investigate the economic and policy issues associated with performance-based regulation," and the Hawaii PUC’s landmark white paper, “Inclinations on the Future of the Electric Utility,” which served as a guiding document for the language of the bill. However, "any resulting performance incentives have not been transformative in urgently moving electric utilities toward the State's ambitious energy policy goals," according to the bill.

Anne Hoskins, chief policy officer at Sunrun, called on other state legislatures and PUCs to take notice of Hawaii's efforts and find ways to better align utility and consumer interests.

"The time to make these changes is now, before billions of dollars are spent in rebuilding our outdated electrical networks," she said. "Rooftop solar and home batteries are allowing use to choose a system that maximizes public benefits, not utility shareholder profits."

Last July, the Hawaiian Electric Companies won regulatory approval for its Power Supply Improvement Plan, which lays out how the utility will reach the 100 percent renewables mandate by 2040, five years ahead of schedule. But while giving the plan the green light, the PUC complained that HECO did not adequately identify customer-based alternatives to utility-owned battery systems.

Regulators also questioned the plan’s reliance on procuring up to 100 megawatts of “firm, dispatchable, flexible generation” on Oahu, noting that such a move would require a competitive bidding process that included energy storage, efficiency and demand response. The PUC expressed general concern over how much the plan would increase customer rates.

The Ratepayer Protection Act, introduced by Senator Stanley Chang, was passed unanimously earlier this month by the Hawaii State House and Senate. The bill goes into effect on July 1, 2018.