Visions of utilities’ future from Hawaii: Facing up to the tech-regulatory disconnect and difficult conversations ahead

By K Kaufmann

When you get a group of utility executives together — a significant number of them wearing Hawaiian shirts — unusually frank and insightful conversations can take place.

“There is a clear need for us think about not just the revenue model for the future but what is the business model and value and the product model that utilities are going to offer in the future. We today just offer kilowatt hours, that’s what all of our pricing models are really based on. We’ve got to move to a place where we’re something else, and the something else is a reliability industry; it’s a something that offers real value to customers in a way that at the same time recognizes that they can have differentiated options for different products and services that we offer.”

Utility executives in Hawaiian shirts: A panel discussion during SEPA’s fact-finding mission to Hawaii with (from left) Steve Malnight, Pacific Gas & Electric; Colton Ching and Jim Alberts, both from Hawaiian Electric Company; and SEPA’s John Sterling. (Photo by Cynthia Hunt Jaehne)

The setting for the above quote was a hotel meeting room in Honolulu — hence the Hawaiian shirts — where about 20 utility executives were closing out the Solar Electric Power Association’s (SEPA’s) recent fact-finding mission to Hawaii, Sept. 28-Oct. 1. The person speaking, along with others in the room, had spent the previous three days immersed in Hawaii’s high-penetration solar market — one in three single-family homes here have rooftop panels — and how the islands’ utilities are dealing with the onslaught.

They were all extremely aware of the utility industry’s need to change its internal thinking, business models and customer relations strategies, and they also saw clear connections between what is happening in Hawaii and what they are or may soon be facing in their own home markets.

The technological-regulatory disconnect

Utilities and the regulatory bodies that oversee them think and act in long-term time frames. The solar and cleantech industries — driven by innovation, market competition and a disruptor mentality — are moving at exponentially increasing speeds.

And the markets are moving with them. The SEPA mission heard from more than one Hawaiian official that the drivers for the state’s recently passed mandate to run 100 percent on green energy by 2045 were as much economic as environmental — reducing greenhouse gases and customer choice, promoting renewables and creating jobs.

How are utilities preparing for the future? Read the new SEPA-NREL report, “The flexible solar utility,” here.

The result of the technological-regulatory disconnect, said one participant, is that “utilities end up in situations where we’re saying no. We hear a question like ‘how much (solar) can we take’ and we go into our mode of — well, what are the technological limits of the system or when do I have to make a big investment? We need to ask ‘What are you trying to accomplish? What is your goal and objective, and how do I help you get there?’ How do we as a company and industry help achieve that?”

Another pitfall of saying no to a specific operational challenge — such as putting 50 percent or 100 percent renewables on the grid — is the potential for backlash when the inevitable technological fix is found, another participant added.

“Utility engineers are great at fixing stuff. The utilities figure it out; we always figure it out.”

“We’ve got to get comfortable not knowing — going in — exactly how we’re going to do it and rely on each of our capabilities to solve problems,” a third participant said. “(With) just stubborn commitment to get something done, we can do amazing things. That’s not utility culture. It’s very careful, very risk averse, very cautious.”

Multiple pathways, flexible solutions and difficult conversations

Going forward will likely mean looking at multiple pathways and flexible solutions. When informally polled on how long they thought utilities had to “figure it all out” — five years, 10 years or longer — several trip participants said the time frames were going to be much shorter, six months to two years tops, implementation not included.

What’s ahead includes some uncomfortable and difficult conversations about the roles and responsibilities of all stakeholders — utilities, regulators and customers.

In a totally offhand remark, one participant said that some utilities’ current proposals for fixed or demand charges on solar customers are likely an interim measure — and two minutes later, another person agreed.

“We’ve got to unbundle our services. We’ve got to talk openly and transparently to people about what true costs are, and that will be hard because me and most of my family, if you tell them they’re going to have to spend 30 minutes a night to manage their electric bill, that doesn’t sound very exciting.”

Unbundling could also mean regulators might have to consider more flexible, conditional rate structures to accommodate fast-changing technology, as well as rethinking what parts of the utility industry need to be regulated and what parts can be opened to market competition.

“Regulation exists where competition is not the most efficient way to deliver a service to society,” one participant said. “When it comes to behind-the-meter services and offerings, in-home options, I don’t see any reason why that has to be regulated or should be.

“Maybe utilities want to get into it; we may be very well positioned to compete. But you shouldn’t go into it with the idea of doing it as a rate-based investment. That model — regulators would sit back and say, ‘Why would I do that?’”

K Kaufmann is SEPA’s communications manager. She can be reached at [email protected].