‘The Timing is Interesting’ -- How does Performance-Based Regulation affect HECO’s stance on LNG?

from ChatGPT (excerpts)

Performance-Based Regulation, adopted by PUC in 2020, (PBR) fundamentally changed HECO's financial incentives in a way that made pursuing LNG much less attractive.

The Hawaii PUC's PBR framework attempts to disconnect profits from simply building more infrastructure and instead reward performance on goals such as renewable energy deployment and ‘greenhouse gas’ reduction.

One important part of Hawaii's PBR framework is revenue decoupling. Under decoupling: HECO earns its approved revenue regardless of electricity sales. The utility no longer benefits financially from customers consuming more electricity.

Why LNG became difficult under PBR

Imagine HECO in 2012.

An LNG project might have looked like:

• build LNG terminal
• build storage tanks
• convert generating plants
• lower fuel costs
• earn regulated return for decades

Now imagine HECO under PBR.

Management instead asks: Will regulators reward us for this investment?

The answer becomes uncertain because:

• LNG doesn't improve RPS compliance.
• LNG still emits CO₂.
• The infrastructure may be obsolete before being fully depreciated.
• PBR rewards renewable performance rather than fossil fuel expansion.

The current five-year PBR period is ending, not the PBR framework itself. Here's the timeline:

• December 2020: The Hawaii PUC adopted the PBR framework.
• June 1, 2021: The first Multi-Year Rate Plan (MRP1) went into effect.
• June 2021–May 2026: The initial five-year control period.

Rather than allowing PBR to expire, the Commission planned from the beginning to review and revise it during the final years of MRP1.

Where things stand now

The PUC has been conducting a multi-phase review:

• Phase 5: Evaluate how well the current PBR mechanisms worked.
• Phase 6: Decide what mechanisms should be modified, added, or eliminated.
• Phase 7: Implement those changes during 2026 in preparation for the next rate period.

The Commission currently expects the second Multi-Year Rate Plan (MRP2) to begin January 2027 , after realigning the schedule to the calendar year.

This timing is interesting because 2026 is the first major opportunity to revisit the incentive structure that critics argue discourages LNG and other ‘transitional’ fuels.

The traditional utility business model strongly favored utility-owned generation. PBR weakens that incentive, although it doesn't eliminate it.

If JERA's LNG proposal comes before the PUC while the Commission is still deciding how PBR should work for MRP2, the Commissioners have an opportunity to consider a broader question:

Should the next version of PBR continue to assume that HECO is primarily a generation owner, or should it evolve toward a model where HECO is principally a grid operator and purchaser of power?

If the PUC concludes that Hawaii needs additional firm generation for reliability and affordability, an independently owned LNG facility may be easier to fit within the current regulatory framework than a HECO-owned LNG facility.

That is because the regulatory question shifts from "Should HECO invest billions in fossil-fuel infrastructure?" to "Should HECO be allowed to purchase electricity from an independently owned plant under a long-term contract?" Those are different regulatory questions, and PBR tends to make the second model more compatible with its emphasis on performance rather than utility asset ownership.

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HECO Does Not Endorse LNG – pushes for more solar bids

SA July 18 2026: … HECO CEO Scott Seu confirmed to the Honolulu Star-Advertiser Friday that the utility company and JERA had previously engaged in talks on how to work together, but the effort ultimately fell flat.

“We actually did spend a fair amount of time talking to JERA, really trying to understand what they were proposing and how we might be able to work together,” Seu said. “Ultimately, we weren’t able to figure that out. We’re not in any discussions with them at this time. Then they took the next step with their filing to the PUC.”

JERA’s plan is to provide power “under a regulatory framework” that would then be distributed to HECO to serve customers and operate its electric grid. JERA contends the proposed structure would provide more oversight because rates, operations, performance, financing and major capital investments would be subject to PUC oversight….

“Hawaii is a very small electric market, and there have been analyses done in the past, including recently, that have really questioned whether or not customers would see any real benefit if you were to split off a generation utility business from Hawaiian Electric, because we’re such a small market here,” Seu said. “There’s lots more questions than answers.”…

(TRANSLATION:  The LNG plan reduces utility-owned generation capacity, thus placing more independent producers under PUC oversight.  HECO is building more diesel plants because solar is diesel.)

read … HECO seeks energy bids as JERA moves forward with LNG plan | Honolulu Star-Advertiser

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Hawaiian Electric seeks to expand renewables, energy storage on Oahu, Hawaii Island and Maui

- Represents significant progress toward 100% renewable energy
- One of state’s largest energy procurements ever
- Additional 500 MW of firm generation on Oahu to be sought

News Release from HECO, July 17, 2026

HONOLULU, July 17, 2026 – Hawaiian Electric today submitted its Integrated Grid Planning Request for Proposals (IGP RFP), seeking plans for competitively priced renewable energy and storage for Oahu, Hawaii Island and Maui to meet customers’ growing energy needs and modernize the generation fleet to drive down costs by reducing the use of oil for power generation.

Collectively, these projects comprise one of Hawaiian Electric’s largest-ever energy solicitations. When completed, these projects will make significant progress toward the state’s goal of using 100% renewable energy for power generation by 2045. Today is the deadline for submittal of the RFP solicitation as part of the company’s planning process overseen by the Public Utilities Commission (PUC).

“Hawaii needs to move faster and we think our expedited procurement plan is the best way to drive competition, evaluate all options and more rapidly build a portfolio that meets the requirements of efficiency, reliability and lower carbon emissions and does it at the least cost,” said Scott Seu, CEO of Hawaiian Electric. “This is one of the actions we’re taking that will benefit our customers and our state sooner, not on some faraway horizon.”

Hawaiian Electric is proposing four immediate action steps:

Retiring aging power plants sooner by accelerating the addition of modern firm generation that can efficiently produce electricity 24/7 when variable resources like wind and solar aren’t available.
Launching one of the largest generation resource procurements in state history in a competitive bidding process to seek nearly 1,650 gigawatt-hours (GWh) of variable renewable energy (i.e. solar, wind,) 465 megawatts (MW) of grid forming resources (i.e. solar generation plus battery storage) and 111 MW of firm generating capacity, resources that can be available 24/7. Projects would be in service between 2031-2034.
Seeking separate, expedited regulatory approval to expand the procurement for fuel-flexible firm generation resources on Oahu by up to an additional 500 MW. In a letter to the Public Utilities Commission, the company said it was seeking a “transparent, Commission-supervised forum” to evaluate the firm generation component within the broader portfolio of new resources without pre-determining its size or fuel requirement.
Launching a request for proposals for all fuels by the end of 2026, including liquid and gaseous fuels, to provide a competitive evaluation of such measures as price, sourcing and environmental impact.

Oahu, home to nearly one million residents, uses more than 70% of the electricity generated in Hawaii. Electricity demand is growing at its fastest pace in two decades as transportation and industrial processes become increasingly electrified.

Hawaiian Electric emphasized that it remains open to a range of solutions to meet Hawaii’s energy needs, including liquefied natural gas (LNG) for power generation.

“We believe natural gas could be a beneficial option for Hawaii if it can deliver value to our customers,” Seu said. “At the same time, any such pathway must be evaluated transparently, rigorously, and independently through the PUC’s process.”

An affiliate of a Japan-based energy conglomerate announced its plan to create a separate regulated utility to build and operate what would be the biggest power plant on Oahu, fueled by LNG, with additional generating project investments to follow. This energy conglomerate notified the PUC it will seek approval of this project outside the longstanding competitive bidding structure.

If the PUC agrees to expand the scope of procurement in the upcoming competitive bidding process, the energy conglomerate’s project could be considered as part of the overall portfolio of resources being sought.

“Having more options is always good and we welcome proposals by all developers to help find the optimal resource mix for Hawaii,” Seu said. “We believe in an open competitive process as opposed to a sole-source, multibillion-dollar contract without seeing what else is out there to ensure we’re getting the best outcome for Hawaii today and for decades to come.”

Interested developers can find more information on Hawaiian Electric’s website about the company’s competitive bidding process. Information about the RFP regulatory proceeding can be found on the PUC website under docket number 2024-0258.

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