 Think Tech Hawaii. Civil engagement lives here. Okay, we're back. We're live with Marco Mangostore for Amina Marco and me on Mondays About Energy. We're so happy to be able to do that. Welcome back to your show, Marco. Well, David, thank you so much for having me back. I'm actually speaking to you from about three miles east of beautiful Kamekakei looking across on a beautiful spring day here to the island of Lanai in the distance and a few white caps there on the channel. So what better way to share that with my good buddy Jay Fidel. So thanks again. Okay, you mind if I refer to you through the show as a wandering solar warrior? I will accept that with great humility and gratitude. Thank you, my friend. Okay, Marco, let's talk about some of the things that have been happening. We've entitled this show a Confluence of New Events About Energy. And indeed it is some important things are happening right now that will probably cast a long shadow on the initiative for clean energy in Hawaii. So let's talk about SB 2100 first. That's been cooking in the legislature this session. That could have a big effect. What's the status? Put together quite a bouillabaisse, which is a French word for fish soup. Hopefully tasty one. As far as the bill, now been referred to a conference committee. Hasn't been announced when the conference committee will take place. It really has to take place within the next couple, three days because we are rounding wrapping things up at the legislature with final four votes scheduled for next Monday and Tuesday and then their power for the session. So this is the last week. This is the conference committee week. And the frustrating thing about conference committee is, yeah, you can probably get in the room, but you can't raise your hand and say, wait a minute, you guys, you should make a change here. Pass it or don't pass it. You just have to sit there quietly, right? You know, you bring up a great point, Jay, and I'm ashamed to say that I don't know whether the public is allowed participate, but to be present during a conference committee. Do you happen to know whether that is permissible? Gee, I'm not sure now that you ask it that way. I thought you could get in, but I'm pretty clear that you can't participate. I thought you could sit there quietly, but not participate. Maybe you can get in. I don't know. I'll circle back to you next show and we'll nail that down. Yeah, okay. The co-chairs from the House side are Chris Lee and Nicole Lohan, both great folks, and the chair and then two other House members, so four House members. And then from the Senate side, Senator Lorraine Inouye, who's chair of the Senate Energy and Transportation Committee, she's the chair on the Senate side, and there will be three senators. So it'll be a total of seven, and we're just waiting to see when the schedule, when they're scheduled to meet. And this bill would do several important things if it were to get out of conference and more let this current form and make it to the government desk. It would, homeowners and business owners could claim for the installation of a new blend. It would also re-storage both as part of a new system installed for photo will take plus battery at the same time, and also re-storage to existing photo will take system. So this is something that many of us in the industry have and others have wanted to see happen over the past several years. It failed last year, it failed 2016, so I'm lighting my incense sticks and doing my circumambulations around the solar temple in hopes that the third time will be a charm. And we will know very, very, very soon whether over the hump and get it to the governor desk. Well, you have the Senate and the House both passed it, and the reason for the conference committee is that there are differences between their respective versions, which they have to iron out. Although my recollection to the procedural point you raised is that even if there are only limited differences between the two versions, the conference committee can go further and make other changes, even profound changes, or they can kill it I suppose. So it's like, you know, you don't know exactly what's going to happen in a conference committee these days. And so I would ask you, at least from the point of view of the two versions, what is in play here? I recall we talked about this before and you said, well, there are nine lines for exactly what the numbers are in terms of the ramp down of the credits and the new credits for storage and for storage that goes with old facilities. But aside from those numbers, is there anything else in play here? And what are the numbers that are in play, if we know of any numbers that are in play on those points? And they are very, very similar language except for the fact that Sylvia Luke's finance could be monetary cap for the various tax credits. They left the percentages as in 25% for this tax credit, 30% for that tax credit and so forth. But they kind of surprisingly, or maybe not so surprisingly, they took out the actual 25% or 5,000 or 25% of 3,000 or 3,000. They took out the 1,000 part so clearly decision was made in that committee to punt it to the conference committee. So we will see what they come up with. I mean, I would have thought I would have made it out of conference last year or the year before, but it did not. So I think let me put it this way, I would be surprised if there were whole sale changes. And one of the pieces of puzzle, a really, really important piece in fact, is what is the estimate of what this hit of these tax credits is going to be on the general fund. And as I've said a number of times on the show, you know, if you go back and look at the past three years' worth of data that we have for tax credits in Hawaii, 2013-14 and 15, almost half a billion dollars was claimed for the renewable energy tax credit far and away, the most shall I say expensive tax credit that the state has had over the years. So as part of squaring the numbers, money in, money out, having a balanced budget, you need to have some idea of, well, if you pass this bill, what's going to be the hit on the state finances? And I don't envy those data crunchers and the prognosticators because trying to come up with some estimates of what the tax credit hit is going to be for these new tax credits in next year, the year after the year after. I mean, that's a huge guessing game, but they got to guess nonetheless, right? Because you can't just go blindly throwing out tax credits here and there and not have it have it have an effect on the state's overall financial solvency, right? Sure. Now you mentioned a cap a minute ago. What's the cap? Is the cap the amount of credit that an individual taxpayer can take or is a cap the total amount of credits that would be available to everyone? What's the cap you're talking about? Oh, good question. Yeah. It's a former, not the latter case, so if let's say G5DL wants to put in a system, a portable take system with or without batteries, you can get let's say 25% of the cost that system paid for through a state tax credit or $5,000 whichever is less or $3,000 whichever is less or X dollars whichever is less. So it's not a gross cap that and businesses will only be able to claim a total of $500 million or some gross sum, but it refers specifically to what individual tax filers or business tax filers can claim. Well, it all seems pretty positive to me. I mean, I think I wouldn't stand in the way of the ramp down. I think they've been talking about having a ramp down for a long time 10 years anyway. And I think it's a good time to talk about giving credit for storage because storage is a really important part of going forward here. And having a cap is not an unreasonable arrangement. I guess the question is how much the cap and as you pointed out the macroeconomic question of how much is this going to cost the state. It's a little confused these days about how much the state has, how much the state is trying to take advantage of the federal tax reform act, whether there's enough money to do what we want to do and whether we can afford to spend a lot or maybe we should be restrained. And this is maybe one of those bills which somehow gets involved in that conversation. If it's unknown, then it's unrestrained and that creates a problem for having a balanced budget. I agree. You've got to make sure the numbers match numbers out. What comes out in the days to come. Yeah, this could have a big effect on the installers and on the installation of solar in general. Okay, let's go to point two. Jennifer Potter. I met her at a legislative hearing a couple weeks ago. She's very charming, very nice, and I was happy to meet her. And she was at that time seeking confirmation. How did that go? Four to zero and who didn't vote with excuse absence? Kind of reminds me back in school days whether you had an excuse or an excuse absence, but since Laura Thielen, Senator Thielen, I believe was the one who was excused from the vote. So there are 25 members of the Senate. She got 24 to nothing and she will take Lorraine Akiva's seat, so to speak when Commissioner Akiva rides off into the sunset after a successful six years, I believe, will term at the PUC and that will end June 30th and Jenny Potter will be cranking away at her desk. I'm sure on July 1st, hard at it, I feel really her appointment, I think very interesting choice in the GOVs from the GOV perspective to go out of the, take it from the deep bench essentially of HNEI and from an Iwase. So I think it was a great choice and I expect great things from Ms. Potter. Yeah, that's great. And it's nice to see, you know, fresh faces and try to imagine how that's going to all work out. Do you have any thoughts about how she would change the tilt, the mindset, the collective mindset of the PUC? She is an attorney by training and I think is really giving it an incredible effort and done great things as a commission. Randy Iwase is an attorney. Jay is a PhD with a very deep understanding of Wonkish issues in terms of energy. I have a lot of respect and a little upper Jay. And Jenny also comes from the Wonkish side. She's not an attorney but she has worked for Sacramento Municipal Utility District also known as SMUD, Lawrence Berkeley Labs and knows more so than perhaps virtually anybody else who's been on that commission for a long time what actually is going on in utilities in the 21st century and the changes that are happening I think that's where it sounds positive in the sense that we'd like to know what's going on in the mainland. We'd like some in-depth knowledge about that. And you know, although attorneys do understand a lot of the, you know, legal infrastructure about energy it's also good to have policy Wonks and people, policy Wonks who are familiar with the technology to me this is very important going forward. So this may all be a good mix right now with the chair being a lawyer and then two people, two commissioners who are into policy and technology. I kind of like that mix. Anyway... As do I. I think it's a great lineup. I mean we've had Bright Wonks before like our friend Mike Champley certainly came to the utility at a good utility background Nina Legislature on attorney. So it's going to be interesting to see John Cole as well who's now with HNEI. Kind of interesting to see some of the folks who have filtered in and filtered out of that commission over the past several years. This is all, you know, it's all relevant to one particular docket that the PUC recently opened up and I want to cover that right after this break Marco. That's Marco Mangos. He joins us from Kanaka Kai. We'll be right back after this short break. We'll talk about a special new docket that the PUC has recently opened up. Hi my name is Bill Sharpe host of Asian Review coming to you from Honolulu, Hawaii right here in the center of the Pacific Ocean. Asian Review is the oldest of the 35 or so shows broadcast by Think Tech Hawaii. We've been in production since 2009. Our goal is to provide you the viewer with information, breaking information about events in Asia. Asia being anything from Hawaii west to Pakistan from the Russian Far East south to Australia and New Zealand. We hope to see you every Monday afternoon at 5 p.m. Hey we're back. Marco Mangosdorf and me. Marco joins us by Zoom actually from and VoIP from Kanaka Kai, Molokai. And we're talking about a confluence of new and important events and developments in energy that seem to be happening right now. So all the things are happening together and they all affect each other. So one of the things that happened, and this is before Jennifer Potter will have been seated, is the PUC opened an unusual docket a docket seeking to determine performance standards to modify the existing utility business model of both utilities in this state. And that's very interesting especially when you take it together with the fact that there was a bill pending. I don't know if that bill is still around. It was a bill pending for a similar effect in the legislature. Do you know if that bill is still around, Marco? On the governor's desk that's why the timing is really kind of interesting because a bill ended on the gov desk a couple weeks ago that would have Public Utilities Commission open a new docket. It can also be referred to as performance based incentive or using performance based metrics proposes what would be a rather wholesale, very dramatic change. Say there are three, there's HECO, HECO, MECO, but they're all part of all electric industries and HECO and MECO are subsidiaries of HECO. Pointedly, Jay, pointedly, KIUC was left out so they are not part, they would not be part of the meeting. So here you have this bill that was passed by the legislature sitting on the gov desk. And lo and behold, last week the commission decided to open a docket prior to any bill being to do so. So of course the commission just can't whip up a docket willy-nilly. I mean there's a lot of time and effort, prep work that goes into doing something like this. So clearly they were working on it in the month before. So I don't know politically what the timing was. Well the timing was such that if they filled the gov thunder, I'm not sure if they did that, but now the governor has a bill on his desk that would mandate the commission to do something that they just did. So how is that going to work out? I'm not sure. Yeah, well maybe there's differences between what the PUC has put in its docket and what is in that bill. It may not be the same thing. But let me ask you some questions. So we've established that the bill does not cover KIUC. Does the docket cover KIUC? Neither. No. Neither the bill nor the docket, which is officially 2018-0088 2018-0088. And you can find it on the PUC-DMS data management service website or system website. And neither of the current docket, which is open nor the bill sitting on EGIS desk covers Coyle and Utility Co-op. Do you have a sense of whether the bill and the docket are the same or are there substantial differences? I haven't really well, the bill was just telling, like I said, mandate the commission to go ahead and open a docket. But the docket itself, which runs about 60 pages, I should say the initial filing runs about 60 pages, of course provides way, way more detail, depth and breadth of detail than it did on the governor's desk. Yeah, so it wouldn't be inconsistent then. So what you have is the detail that the PUC would have had to look at anyway. Yeah. The other thing that strikes me is that this is unusual, isn't it, for the PUC to initiate a docket all by themselves to respond to on their own motion. This is quite a notable event, isn't it? Exactly, characters like Dad J. They do it from time to time kind of on their own volition. So it's not all that unusual of a thing to do. I mean, I think it holds both promise and some peril here. And they are saying under the docket that just opened last week, they would allow the stakeholders to kind of throw ideas and see what sticks out there. And if it's anything close to or let alone even more kind of crazy than compared to the Hawaii, Hawaii Electric Industries next year, a docket where there were 27 at 1.27 interveners. I see kind of a free-for-all possibility where you'll have dozens and dozens of parties including the usual suspects that will be applying to be interveners and individuals, companies, interest groups far and wide. So it could be a real blankety-blank in terms of a free-for-all as far as it is as to how Hawaiian Electric should dramatically change their entire business model. So I think it has the potential to be rather messy and fairly to tell. Interestingly, one of the things that the docket pointedly leaves off the table, and they say this very explicitly, that this docket is not to consider alternate utility ownership models. Not to consider alternate. We'll just have to wait for our friends at Boston Consulting in London Economics who got that close to one million dollar grant, but a project from DeVed to look at alternate utility ownership models. And we should have that report, hopefully in six to eight months just prior to the 2019 legislative session. So if you kind of fast forward, within the next seven, eight, nine months, there could be a lot of really GC stuff happening both on this docket, in terms of performance-based regulation, and also the report that the state is paying close to a million bucks for looking at alternate models to IOUs and investor-owned utilities. So I think we're really kind of cutting edge. Another thing that struck me when I read through the initial filing from the commission is that we are really going in cognita here, Jay. While they cite other states such as Rhode Island, Ohio, New York, Minnesota, and even the UK looking at performance-based regulation, the reality is none of them have actually embarked 100% down this path. So there's very, very little of a actual track record that I know of where any utility in the United States has really been doing this much at all, or for any length of time. So it essentially is turning on its head the whole notion of an investor-owned utility, which is you spend more to make more. You get capital, you do infrastructure projects, grid modernization, and you get that money back through increasing the rate base. So there's an incentive, or so the commission argued, there's an incentive to spend more to make more. And they are wanting to put together a stakeholder group through this docket and come up with an alternative means or alternative model for an investor-owned utility to operate that would not be based on spend more, more, more, and get more, more, more back in terms of rate of return, or rate of return on equity, but to what's best for the rate payer. So I see this actually as something of a threat once Wall Street really begins to understand this on a deeper level in terms of how is moving in this direction going to affect stakeholders? I mean, excuse me, shareholders. Let me ask you a couple of questions that come to mind on this. Does the report, the million dollar report you mentioned, does that also include a change of the rate arrangements, the rate provisions such as performance based rates, or is that merely ownership? Yeah, that's what I, my recollection would be the same. So it's really interesting to see at some point these two things can meet. They get ownership and ratemaking. On the other hand, maybe ratemaking will resolve problems that the people who want to investigate ownership have had, and maybe resolve those problems so it isn't necessary to get into questions of ownership. Who knows? But, you know, there's obviously two tracks, two trains on this track. The other thing I want to ask you is what kind of performance standards are we talking about here? It seems like a pretty vague term, and I wonder at least from the PUC filing, there must be some indication of what kinds of performance standards we're talking about. That's what's up in the air. Performance standards, what metrics are going to be used, and when you get dozens of stakeholders who are going to be making a claim that this or that metric in terms of performance is the best one or the most important one to focus on, I mean it's going to be real free for all. And I got to tell you from the perspective of being a small business owner that, you know, the Hawaiian Electric industry is a publicly traded company, but for all intents and purposes although they're a publicly regulated monopoly in terms of producing and transmitting power across their service territories, I mean for all intents and purposes they're a private company, right? Even though they've got public shareholders. So, they private company take to essentially being told by outside entities that they need to dramatically change their business model. I mean, you know, I may be misinterpreting and I may be a little bit overly sensitive about it, but there's a part of me that just kind of lifts my hackles up the notion that private companies should be told how to dramatically and irrevocably change the whole nature of their business. I mean, yeah, I understand the argument for the docket, and I certainly support the docket being open, but at the same time, you know, consider the perspective from Hawaiian Electric on this, and I'm not you know, I don't have any inside information, but again there's a part of me that is a small business owner is I'm thinking, this seems kind of kind of, I won't call it draconian by, I guess that's not the right word, but it's a pretty big move to make efforts to change the business model from the outside of one of the oldest, longest standing, most vulnerable companies in the state. Yeah, and the country for that matter. You know, and you wonder if there's been law developed in other jurisdictions on how far, you know, the PUC or the legislature can go in terms of changing the essential profit process of a given utility. I mean, this is, it could be draconian, as you say, which leads me to a thought I wanted to express to you and see what your reaction is. You know, a lot of the people who I think you correctly surmised might want to be stakeholders in this are people who, you know, were opposing the next era deal, who have been attacking the utility for years and years who, you know, are just not going to agree with anything the utility would say, just as a historical matter. The utility I expect would be very reasonable in these discussions, but they're going to find a bunch of people in that room, in that stakeholder group, whoever is committed as interveners, you know, who are not very concerned about retention of the essential profit motive of the utility. And that suggests that we're going to have a long tough argument about this in the PUC. This is going to suck all the oxygen, arguably going to suck all the oxygen out of the utility's efforts to move forward and to do with grid modernization and all that. So you really wonder if this is going to go to a good place or going to devolve into a long and destructive argument. What do you think? Well, if I recall correctly, phase one, there's phase one and phase two. Phase one is kind of the discovery where the free-for-all takes place. I believe the commission said they expected to last around nine months. So that takes us into early 2019. So there could be quite a lot of the free-for-all and, so to speak, over the next eight or nine months. And then phase two is going to be trying to distill down from phase one avenues from here. Like I said earlier, I really do see this as Tarant and Cognita. I was reading this docket, opening very carefully to try to see what experience have others had. And like I said earlier, they referred to what other states were trying or just starting to try looking at, you know, dating back to all of last year. I mean, so this is pretty brand spanking new for what I can tell. So it's, again, it's good that the commission is open as docket. But what's going to be the actual result? Is it going to lead to how do you what metrics do you come up with to measure that performance? Is it on time for the grid? Is it lower electric rates? Is it better customer service? And so on and so forth and so on. It's really, there ain't no kind of blueprint that has been established that people can heart to and say, oh, well, these folks have been doing it successfully for five years or ten years or 20 years. We can learn from them. No, everybody is kind of learning from each other as we kind of fumble our way into the relative unknown here. Yeah, well, and that could lead to a delay of the initiative and complication with the initiative and people not wanting to proceed for the lack of certainty. And I think it's a real risk. But I also think that the PUC if it handles this right can keep that to a minimum and do this on a constructive basis. And, you know, we'll all be better off if that takes place. So a lot of this is really, you know, on the desk, the collective desks of the commissioners, including Jennifer Potter of the PUC to make sure this happens in a way that, you know, it's constructive and doesn't get in the way of our primary mission. Here, here. Okay, well, we're out of time, as usual. I'm sorry about that. Why don't we do this again in two weeks, Marco? Okay? And in fact, in two weeks we have none other than Ms. Jenny Potter who will be joining us as a soon to be newly minted commissioner at the White Public Utilities Commission so she will be our guest at Dono and our special guest. Yes, indeed. That'll be great. So if you're around, you should listen to this one. Jenny Potter comes on ThinkTech. We'll have a great discussion about these very points. Thank you, Marco. Mahalo, new human friend. Thank you. Mahalo.