 having a good time on a given Monday morning. We're here to talk about energy, energy 808, cutting edge. And so we have Marco Mangelsdorf, who is our regular contributor. And we have Jenny Potter, who is a commissioner on the PUC, who is also kind of like a regular contributor too. Welcome to the show, both of you guys. Thank you, Jay. Well, hello, Jay. Always a pleasure. Marco, you know, maybe you can take a moment and introduce Jenny more fully. Would you do that? I can do that. Never get tired of introducing Jenny. You know, I have a bit of a confession to make. I'm fond of all three of our Hawaii PUC commissioners, but I have a particular fondness for Jenny. Jenny and I, it's not as if we go back decades, but in the years we do go back, it's a relationship and a friendship that I so value. And I'm so appreciative of all the work that you do, Jenny and the rest of the staff are the PUC, Leo, Jay, Caroline, the Dave's, as I call them, Parsons, and Matisse, and a whole bunch of other people I don't know the names of, but just so much appreciation for what you guys do and so much appreciation for you on this Monday that you are joining us again. So thank you, thank you, thank you. Great way to start my beginning of the week here. So PBR, performance-based regulation. The commission issued a decision and order back in December, a little more than a month ago, and a lot of people have been digesting it, Hawaiian Electric, various commentators in the state, outside the state. So the question I wanted to start with you, please, Jenny, is what was it like on the inside? What's it been like on the inside of the commission, dealing with something as big, as complicated, as impactful, as groundbreaking that PBR is here in Hawaii and across the country? What was it like for you and for the commission dealing with this and putting out this order? Marco, we spent over two years, we spent about two and a half years on the process, and that included a very extensive stakeholder process, which we received a lot of accolades for during the whole proceeding was recognized as one of the innovators of regulation by SIPA for our practices in engaging with our stakeholder community. And but without them, there would be no PBR. Honestly, the contributions and the time and the commitment from our stakeholder community has been just over the top. It's not anything that I ever would have expected people to do, you know, sort of, I know they're paid, you know, within their job, but this is above and beyond any type of work that I would expect coming from this type of community. And then because there was such a tremendous amount of input that came from that group, we held a number of working groups and technical conferences and status conferences where we would review the material. There were thousands and thousands of pages that were filed, which was daunting and completely overwhelming for our staff, of course, to go through and to try and process. And finally, to get to a point where we could find consensus among, in the record, through all of those pages and all of that contribution, the workshops, et cetera, to find consensus among that stakeholder community that aligned with the vision of the commission. It was a tremendous lift. Our staff worked tirelessly for months in order to prepare that decision in order. It wasn't anything that we just threw together at, you know, in December. It was something that we've been working on months for months and trying to gather the information through information requests in order to come to those conclusions. And ultimately, you know, the commission did go out on a limb on a number of items where I don't think that the stakeholder community quite expected and certainly the utility did not. And then in that case was the case of the customer dividend. The customer dividend as proposed in the original decision in order was about $23 million a year, levelized over five years. And that was definitely raise some eyebrows among the investor community as well as the utility as you can imagine that, you know, that the revenue requirement would be reduced by such a significant amount that perhaps that wasn't something that would be attainable for the utility. And so we received a motion for reconsideration from the utility that and had also feedback from the working groups. And ultimately the commission did decide to lower that amount of the customer dividend to, I guess, to appease, if you will, you know, the investor community and to make it such a less of a direct hit, I guess, to the revenue requirement. Why do you need a customer dividend at all? Why don't you just lower rates? That's essentially what we were trying to do is recognizing at the beginning that we have the highest rates in the United States. And the customer dividend was the whole intention above it was to reduce rates from the get-go. We had committed to day one savings for customers in this proceeding. So that was one of our main objectives was to see, you know, let's reduce the rates right from the outset and ultimately that we did. It just not as much as I think that we had originally intended to do. You know, people may not understand PBR. Can you give us a handle on where you see it going? Because I mean, it's a term that you guys are actually harming yourselves. You know, like first in the country on this and you have to see it, you have to have a vision of it and you have to see where you can change things and make it work for everybody. Because, you know, if you change something over here, you're going to have an effect over there. Absolutely, absolutely. Yeah, it's a great question, Jay. I think one of the first things that, you know, that I so I'll make two points here. The first being this is not, this isn't performance-based ratemaking. Performance-based ratemaking is typically in response to the changes in how customers use electricity. So for example, energy efficiency or they adopt the DERs, distributed energy resources. And so there needs to be adjustments to like decoupling in order to address some of those discrepancies that utilities would find. This is performance-based regulation and that is a whole different. This is we're reevaluating how we regulate utilities and the regulatory compact is a thing of the past. It is something that just, it's a hundred years old. It there's no, we have no business committing to saying, you know, you make these prudent investments and you have a guaranteed return on them if it is long as they are prudent. We're looking at a place where we have, you know, O&M expenses that are now like software and service which can no, they're no longer, it's capital investments, but now instead we're looking at more O&M type investments. So the idea is to really align the utilities, the way that the utility operates with the public interest, with public policy. And so there's a lot of disincentives, right? For utilities to go plate things, to build more generation facilities that might be a little bit more gold-plated than normal. And so we're trying to move away from those types of incentives and say, look, there's a whole other suite of options for you to make money if you perform well. So if you, for example, improve your interconnection speed, which was one of the rate that you interconnect your customers then we'll offer you an incentive to do so. In this case, a $2 million incentive. But if they backslide and they don't put in, they don't interconnect customers as quickly, they'll be penalized a million, up to a million dollars. So that's an example of a performance incentive mechanism that's part of the performance-based regulation framework that really does try and align those two utility interests with the public policy interest. Ms. Frazier, you've become essentially a partner with the utility and management, because you're looking at everything and you're making a rule and then you don't know if it's gonna work exactly, so you have to change it, you have to tune it all up. And one of the, you know, this came up in an earlier show with Marco and me and that is, so we, how often do you have to actually step in in order to tune it up so that, you know, that tune up is aligned as your word, aligned with what you intend to do. Because sometimes you go this way and maybe you have a reaction that way and then you have to come back in. My recollection is that you don't plan to come in right away, but how often do you plan to come in again and tune up what you did? It should be five years. We don't wanna touch this for five years because it's kind of like changing the rules, you know, like here's the rules to the game and then, but wait, in the first quarter we're gonna come in and we're gonna actually change what those rules are and now you need to adapt. And so ultimately we want to give them five years to perform and essentially like set it and forget it, you know, and as much as we can, but we will be very closely monitoring, you know, how they're doing and if there are guardrails in place in this decision and order that will help protect the utility from any type of underperformance. But on the same rate, that goes both ways. If they overperform, then there's because it's, you know, it's like, we want them to be within this bandwidth. We don't want them to, you know, to go outside of it to the downside, but we're north to the upside because that comes at the expense of the consumer. That means people, they're paying too much, the utility is making too much money. So we need to ensure that, you know, we do have those guardrails in place. We have what's called an off ramp as well. So if there's, you know, there's challenges to their credit rating, for example, if they're downgraded, then that would be a reason for us to reevaluate the mechanism to reevaluate PBR as a whole. Oh, you might be right, I mean, earlier than that. By the way, in terms of the timeline on this, you were appointed to the PUC in, what, 2018, and your term is going to expire in 2024. Maybe you'll be reappointed, you know? I mean, you can hope for that, right? But that means that the five years will end after your term is up. Am I right about this? That's right. So, I mean, to the extent that you're in touch with all of this and the existing PUCs in touch with all of this, it may happen after your, I mean, the reevaluation may happen after your watch. How interesting that is, eh? It is, and Jay as well. I mean, I'm thinking, you know, Jay's looking at this and he's thinking, this will expire three years after my term is up, you know? So, yeah, so it is, it's, you definitely recognize that we're setting this up for the next commission. There's actually a lot of decisions that we're making like the performance, I'm sorry, the public benefit fee administrator, the energy efficiency administrator, we're making decisions that will happen long after we leave, so it's interesting because we do have to do our job without mindset, you know? Of like, well, this is, we're not gonna be here for when the clock expires for some of these. So how do we set up the next commission to be in the best position possible? So it's a good point there, Jay. Yeah. Yeah, very interesting to look at it that way. Marco, why don't you go to the next topic? Wouldn't that be good? We're about halfway through our showtime. Yeah, I would like to do that, Jay, but just one more question on PBR for Jenny, and then we can move on to from PBR to DER and then we'll all be BFFs, which is, so there's a fairly thin stratum, I wish three of us are part of that thin stratum that is into this alphabet soup acronym, soup of PBR, P-I-M, BFF, so forth and so on, right? Jenny, could you kind of encapsulate to the many, the vast majority of Hawaiian electrics, 400,000 plus ratepayers, people who pay Hiko Halko or Miko Bill, please explain to them in language that simple, direct, concise, why in the world should they matter, why should it matter to them this transition from cost of services, the antique model, right? To performance-based regulation, why should it matter to them? Absolutely, so one of cost of service model is, like you said, it's archaic, it's no longer serving, it's purpose in terms of providing customers with a utility that can operate efficiently and effectively under a lease cost model. I think what we've seen is cost overruns and we found that in the management audit that was completed this last year, where there was a tremendous amount of savings on the table for consumers that hadn't been realized for years. So there's a real distinction between how to operate a business that's a monopoly and how competitive businesses are run. And in order to sort of, this is one of my favorite sayings. If I do a good job, what doing a good job means for me means that I no longer have a job. So it means that I have taken a monopoly and I've made it fully competitive or I've made it operate as though it's fully competitive. And so that means that there's cost control measures that are embedded in the actual operations and that the utility is running optimally, right? And so for a consumer, for a rate payer, to know that their dollars are being spent in an efficient and effective way to deliver the energy to their homes is of greatest importance. And I think that what we've seen to date, is we see these high electricity rates, we don't entirely understand why they're so high. We're told that it's the cost of oil, but there's a lot of components that go in, like you said, in the cost of service model that aren't necessarily consistent with the way that we need to be doing business anymore. We need to make these regulated entities look a lot more like competitive entities. Right, thank you. Well, just a little more on PBR, it's so interesting this discussion. What effect does this have on utilities other than Hawaiian Electric? I mean, are we, does PBR also relate or not to why Island Utility? And if it does, how is that different? If it doesn't, why not? The only island that it does not relate to is KIUC, and KIUC has its own board of directors and comes in typically under G07 applications and when they want to make large investments in something like hydro, pumped hydro. The Hawaii Island and Maui Electric are also, and Malachi and Manai are also all part of this PBR regime. The way that we structured our decisions and even the PEMS when we were looking at the performance incentive mechanisms is 70% of those penalties and rewards go to HECO and then MECO and HECO get 15%. So, and that's sort of the distribution of energy and revenue and seem fairly consistent way to apply it. So, that's a great question, Jay, but yes, it goes across the board. Well, because the fundamental point she was describing really do seem to apply to all the utilities in the state now and now and forever. Let me go on to electric utility transformation. So I like transformations because transformations always lead or at least theoretically leads to a better place. On the other hand, transformations are, they're always stressful and sometimes they don't go the way you want. So where does that fit in your agenda these days? So, I think what we're looking for the utility to do at this juncture is to start thinking outside of the box. So instead of doing these large scale in utility investments to be thinking about looking at this point just even looking at pilots so to where they can do make ready infrastructure for electric vehicles and see if there's revenues that can be produced there. You know, they procured all of the polls from the telephone company and are using or collecting rent for using those. The, I think the idea of getting into different types of business models such as non-wires alternatives or micro grids or even sort of lease type options for different types of assets would be to the benefit of people. They need to diversify, how they're conducting their business which is part of the idea of transforming them into a more competitive marketplace player. Instead of competing directly though with our local distributed energy resource providers or because that's been where the rub has been for the last several years as we've seen everybody's trying to play in the same pool and fighting over the same toys. And we need to actually look at different swimming pools here, so I guess I wanna go swimming. So. Marco, we have maybe a little less than 10 minutes left. Do you wanna move on to another topic or? Sure, sure. Thanks, Shay. Do you wanna talk about transformation some more? No, I think we've, we can transform ourselves for several hours, I think, but given the limited time, let's move on to distributed energy resources which you mentioned a few moments ago, Jenny. So Riftop Solar of course has been near and dear to my heart for a very, very long time and I can report that after having completed the review of all the PV permits issued across Hawaii's four counties over the past handful of days that we were overall, the whole state were up about 10% yippee compared to 2019 or compared to 2019. 2019 was up a little bit from 2018. So this represents two years past 2018, 2019, 2019, 2020, excuse me, where we've had some growth, not phenomenal growth, but nonetheless I'll take any growth better than no growth. So where does, where does DER fit in in your, in your view, Jenny, and in the commission's view in terms of the level of importance? I mean, it's kind of easy perhaps to think that utility scale plus storage and behind the meter or rooftop solar plus storage somehow is in competition with each other. And it seems to me that we need to double down essentially on both, which is I think is what we're doing. But I'd like to hear in your own words, kind of where you place the importance of distributed energy resources in the overall strategy and plan and execution of reducing our dependence on imported fuel. Yeah. Marco, this is, this subject is near and dear to my heart. This is one of the most important dockets to me and I am a sign commissioner on this proceeding. What we've done is we buy, not even bifurcated, we trifurcated the proceeding into advanced rate design, technical track, which is working out the issues with 1547. I triple the 1547, hopefully people know what that is. And then we have that program track. There's a fair amount of attention on the program track at this point. One of the things that we've done and that we've noted is for the first time in our commission history, we've asked the, the DER parties came to us and they said, we want the model. We want HECO's model. We want the resolved model that they're using in order to evaluate DERs in the IGP process. And that's important to us within this proceeding because we need to know how to value, what the value of these DERs are for our program evaluation and development. And so the commission to set everyone's surprise said, okay, let's do it. You got to give them the model. And so the DER parties got the model from HECO and they're working very closely with the consultant who's very familiar with the model, but you know, it had a pretty price tag. I mean, this was not inexpensive. So the DER parties are in this, they've got money committed. They're working incredibly hard trying to develop programs that will be a standard program that will allow DERs to interconnect that will be instead of, you know, these very, you know, I guess, CGS plus CSS, you know, but a more basic type of program that will either allow export, hopefully, and then, you know, of course, self-generation. The challenges I think that we're up against still are interconnection issues, which have been the companies have worked very, very hard over the last couple of months and trying to streamline their interconnection practices. They've created a quick connect program where they're trying to bypass several of the steps in order to get a customer online within like 10 days. As you know, the typical, the average is around 40 days for the companies to interconnect a customer. So it can be a very lengthy process for someone to get six months, you know, overall between the permitting and so bringing these solutions online is absolutely critical. But one of the things that I want to hit home is there is a huge pool of assets that are sitting out in the field that are not being utilized. We have batteries, we have so many batteries across our territories, along with these PV systems that can provide grid services back to the grid. And so that in and of itself is a huge opportunity cost in order to essentially fill that gap. We have to come up with a way for the companies to get warm to this idea that these assets can provide these types of services, not just giant batteries or, you know, fossil fuel generators. So I'll stop there and then let you follow up. Sorry, it's an exciting one. Well, I have a question that maybe it's sort of a John Everyman question, but so you have the legislature. Legislature is 1.5 looking at a deficit of 1.5, idiot. And the same with the counties. Same time, you know, some of the things, my right could be helped accelerated by legislative action. You know, think for example, with the tax credits or expanding them, changing them in some way, you know, making a legislative statement, spending a little money, do you have expectations? Would it be beneficial to, you know, the program that you see going forward to have the legislature take some affirmative action to assist you? And if I have my way, I would see them tax credit for batteries, for home batteries because of the capabilities. If we could have those local resources distributed throughout our territories, it would be, it would make a huge difference in how we would operate the grid. That would be one of the biggest, I think, contributions that they could make to the energy landscape period. Great, great, great, thank you. Marco, we're almost out of time, so you have to figure out how to use the next two minutes here so that it works well. And by the way, when I say we're almost out of time, Jenny, I mean, you'll have to come back, you know what I mean? I get it again and again. Jenny and Jay and Leo always have a standing invitation to come on back to talk to us. So, yeah, so much more interesting stuff to talk about so little time. I mean, grid services, I think, is a really big deal. Like you say, Jenny, there was a press release beginning last week, I believe, from Hawaiian Electric in a company called Swell Energy based in California that appears that the commission has signed off on one of hopefully many more to come agreements where, I mean, I have a PV system on my home. I have a Tesla Powerwall on my home as thousands of more people are doing as well. And to be able to offer the use, so to speak, the benefits of my Powerwall and my solar to Helco for some type of conversation, of course, because, you know, as much as we want to be all altruistic that's typically doesn't happen all the time. So it's really gonna be kind of devil in details, right? A typical homeowner is gonna say, okay, on the downside, I will gonna be losing some of the control of my own system, right? And on the upside, they're gonna get some kind of compensation. And that's, you know, this is what I call truly the brave new energy frontier that we, California and a few other states, Vermont, if I'm not mistaken, Green Power over there, Green Mountain Power. I mean, a few states are pioneering this and we are definitely leaders in that effort. So I really commend you. And I hope we can go faster here because, you know, there are more and more batteries going in and rather than think about new generation of multi-megawatts, and especially in Oahu, we're talking about the age of coal plant being shut down no later than the end of next year, right? There's really a, you know, a screaming demand to get our act together collectively as soon as possible. So any efforts that you and your team over there, your great team can do to help out, which I know you're doing, you know, are much appreciated. And my sense is that we're doing okay even in the time of COVID. We're making progress. We're doing installations. You guys are doing creative things. You're taking a look at the hard issues and working on them. And, you know, COVID hasn't really stopped the energy, you know, development, evolution in a life. No, you're right, you're right. Yeah, that's great. Thank you, Jenny. Ponder, PUC commissioner. We'd love to have you on. And Marco, thank you so much for arranging this. We'll have another show in two weeks time and we'll enjoy. And soon enough, Jenny, we'll be asking you to come back. I know we will. That sounds wonderful. Great. Thank you so much. It was a pleasure, gentlemen. Thanks guys. Thank you. Absolutely.