 This is Think Tech Hawaii, Community Matters here. Okay, we're back, we're live. That's Jeff Kissel. He is the former CEO of Hawaii Gas, and he's a trustee and a distinguished fellow at Energy Policy Research Foundation, Inc., otherwise known as E-Princk, in Washington and around the mainland, for that matter, the world. Here for Energy in America, welcome to the show yet again, Jeff Kissel. Hello, IJ, it's great to be with you, even though I'm across the ocean today. Okay, well, but you'll be back soon, we'll spend some time. Anyway, let's talk about events here in Hawaii, because I know you follow energy as you have before in all capacities here, and we have some interesting things going on. For example, we have not only a PUC docket, but a statute requiring a study, research study and the determination of new performance standards, which will be involved in rate making here by Hawaiian Electric. I'm sure you've studied that, and I wonder if you could give us your thoughts on what happened and where it leads. Well, it's groundbreaking legislation. There are two other states that have similar kinds of legislation that they're implementing. It's Minnesota and New York. The difference is those two states are fortunate enough to be able to participate in the national grid, whereas Hawaii, of course, is sitting in the middle of the ocean, relying on aging equipment to stabilize its power sources. I think it's an enormously positive step forward, because it will encourage all of the sectors in Hawaii that have anything to do with energy production to do it cleanly, efficiently, and hopefully at a reasonable cost. Jay, there's something that people need to think about. There are only a certain number of kilowatt hours consumed in Hawaii. A few hundred trillion kilowatt hours a year, and the cost of producing that electricity and getting it to the customers has got to be borne by the people that consume those hours. So this legislation attempts to spread that cost on a new model, which is not based on the cost of the installed plant, but on in terms of the efficiency and usefulness of the production of that electricity and distribution of it. That's really new thinking, and the PUC will need a lot of support, a lot of input as it develops the regulations that will implement this kind of legislation. Let's unpack that a little bit. So in order to determine the performance standards model, what's our existing model? Can you give us a pre-C of how that works right now? How it has worked traditionally, historically, and in other places? Yeah, the model that's been in place for over a hundred years has been the utilities get a monopoly, whether it's gas or electric or in the old days telephone, of course. They get a monopoly. And then in order to figure out how much they can charge for their service, the commission says you are entitled to earn a percentage return on the investment that you make in the system. And that worked really well for a very long time, so that you invested a couple of million dollars, you got a 10% or a 15% return on that, and that was included in the price that everybody paid for power. Well, that model is obsolete. It's as obsolete as Toys R Us department store. Toys R Us department store. It doesn't work anymore. Why doesn't it work? What's wrong with it, Jeff? Well, because it doesn't encourage the upgrade of the utility plant to meet modern standards. And many states are starting to consider a change in that model. Hawaii, Minnesota, and New York are the three that have adopted a model similar to the one that you described in your introduction, where the utility gets graded on its ability to deliver useful power to its customers. And that's a major step forward. Now, getting from where we are, which is the legislative stage to the implementation stage is going to take a lot of work and a lot of collaboration. And Hawaii needs to do that. And in the process, hopefully revive its ailing renewable energy industry, which was a pioneer in America and is now in desperate straits because of the change in the net metering law, things like that. Oh, I'm so happy to have this conversation with you. So the word you mentioned that caught my attention is the word process. So the PUC opened the docket on its own motion to determine these standards. And at the same time, interestingly enough, and I don't know whether it was coordinated or not, the legislature ordered the PUC two weeks after the PUC opened the docket that the PUC should open the docket. Sort of a retrospective order. Well, now we'll proceed. And I'd like to know the process. Well, I mean, the process, of course, after Donald Trump's Twitter tomorrow taking credit for the whole thing, the process will begin where the PUC ordered hearings, starts to study the matter, and moves to get community input as well as industry input on how to develop the regulations that will change from the return on investment model to the quality of service model. And that is a huge undertaking. It is as big an undertaking as they have ever thought to do. Why is that? Other people have said that, too. That is a huge undertaking, that it's fraught with the possibility of delay, contention, controversy. Why is it huge? If you could unpack that a little bit for us, what has to happen? What has to be decided? What are the stumbling blocks? Well, right now electricity is billed on a rate per kilowatt hour. And that rate is around 50 cents or so. Now, the question that the PUC will have to wrestle with is how can they equitably bill the customer and still reward the customer for conserving energy, reward the utility for delivering it more efficiently, and move toward Hawaii's goal of 100% renewables over time? That's a big, big deal. Because at the moment, there are four major perils that are facing the customers, as well as the utility and their shareholders. One is fuel. Fuel costs are rising, and going to continue to rise over the next five to 10 years before renewables can come into play. Second is the cost of renewables. In Hawaii, the cost of renewables is high. And rising is the ability of the utility to continue to deliver reliable service as it makes this transition. You know, as I said earlier in the broadcast, people in New York and Minnesota can rely on a grid where they can get power from neighboring states. Hawaii gets power from 75-year-old steam-driven power plants running on fuel oil that have to keep spinning as the reserves for the renewables are required, so that when the sun goes away, when the wind stops blowing, the people of Hawaii still have electricity. That's a huge undertaking. The fourth portal is the political winds. What is going to happen in terms of who is going to help the PUC implement these regulations? And what interests are out there that are likely to impede the implementation of these regulations? Well, one of the expectations is that whenever you open a docket like this, you get a lot of interventions. And in this case, since it's the center of the docket it's rate making, and the new element is performance standards, it's going to draw everyone in as an intervener. Gee, I remember in the portfolio standards process that happened a couple of years ago, it took a long time, and it was not successful. It came up with no real decision. And there were like 70 stakeholders. And I would worry that that will happen again, because this rate making and performance standards are interesting to everyone, to every organization you can think of. And so they'll all be in there intervening. And every time you have an intervener, you have another voice. And that voice can listen to the other voices, and all the voices talk together, respond to each other. So it takes longer, by some factor, every time you add a single intervener in these processes. And I don't know if the PUC has a way to stop that from getting out of control and taking forever. And let me offer also the thought that to the extent that it takes a long time, it's holding up the organic process of moving toward 100% renewables, the process that exists right now today without any changes in rate making. So I wonder what your thoughts are about how we, that is, the PUC mostly, handles intervention, intervention by everybody who has any interest or any remarks to make any opinion to provide on performance and on rate making. Well, I think it's going to take some leadership from the other branches of the state government, most notably the governor's office, because if they don't, what's left of the Hawaii renewable energy industry, the independent providers, people who put solar on people's roofs, people who build wind, and other renewable devices, that's going to continue to die away because of the lack of net metering. I can't wave a magic wand and tell them to reimplement net metering so that you can keep the solar industry alive until these regulations are promulgated. But somebody's got to take a leadership role and speed this new regime to the marketplace so that Hawaii's renewable energy industry won't die away completely before there's time to implement. Well, if you wanted to save the installation industry, the solar installer industry, and I certainly agree it needs saving, it's been a sick puppy for at least a couple of years, maybe three. How would you, what would you address in the regulations now to be organized, issued, negotiated, discussed in the coming docket, in the docket for performance standards, the new docket, what would you do in order to save the industry? I mean, could you lay out some sort of broad terms on that, what should they be thinking about, what kind of initiatives would be helpful to save the industry? Well, the actual bill actually contains language rewarding the utility for speeding the implementation of renewable energy at the customer level. The PUC already has the power to reimplement net metering. They could do that in an orderly way. As an iterative step to getting these new regulations in place. And the minute you put back net metering, I hate to use a pun, but it's like throwing a light switch for the solar industry. It puts it back in business. You know, there was a bill, Senate Bill 2100. And it was the third time this bill was introduced. And I think in two prior legislatures, it was introduced under other names. And it was intended to change the tax credits for solar installation and also storage, that is, battery installation. And it was going to ramp down the tax credits for solar installation, but ramp up the credits for storage installation. The idea was to try not to spend that much money out of the public funds for these credits, but to change the direction, change the incentive process, and incentivize installers into putting in what we all believe is necessary, that is, storage on both existing solar facilities and on new solar facilities that is related to an existing facility or not. So the storage facilities, the storage installation, could be built. And I think a lot of people feel that the low hanging fruit in installing solar by itself is not nearly as attractive to the industry as helpful to the industry as opening the new potential floodgates of incentivizing storage. But that bill failed in year one, failed in year two. And a couple of days ago, it failed in the conference committee for reasons people have no idea about, because the matching bills from the House and the Senate were similar, very close to being identical. And it didn't seem to be any issue that at conference it would be approved in some very close form. And submitted to the floor for a vote. And there was a lot of support for it. But now it's dead. And this is the end of the biennium, so it's going to have to be resurrected if at all next year. Now that bill, I think, would have been good news for the solar industry. It would have been good news in terms of doing these joint projects with solar and storage, or storage all by itself. And it would have resurrected a lot of economic activity within the solar industry. So where do you see the connection? I mean, is there a connection? Is there a rational reason for doing that? Was that a mistake? How does that play together with this new performance standards docket at the PUC? Well, let me comment in two ways. I respect the legislative process. And I can't judge it. I may or may not agree with the outcome, but the process has been running. And we've got what we've got. So I will address that. The second thing I'd like to say is that from a practical matter, storage is very, very expensive at the individual level. And sometimes it's not even practical, because the home configuration is difficult to adapt to small-scale storage. So from a technical standpoint, it's not the greatest solution that there is. The grid is the best place to have storage, because the grid, especially in Hawaii, can be made to have the flexibility to take on the surplus power, even though it's expensive. And I'm not suggesting that it's not expensive. And it can respond more quickly than installing an awful lot of batteries, which actually are pretty dangerous for the environment with present technology. But getting back to the major issue, the legislature has spoken. We got what we got. So let's find a way to unify around what we've got and make the best of it and get it implemented as quickly as possible. And really, that's the most important thing, because you've got at least two more years before you're going to get a storage bill through, if at all. You've got the election coming up, and nothing's going to happen. You've got the first year after the election, and people aren't going to spend political capital, except on sure winners. So my recommendation is, let's rally around the PUC, let's support them, and encourage them. And hopefully, the state will lead the way in implementing the legislation that has been put on the books and the docket that is up there right now. And that means following through on the possibility of a kind of resurrected net energy metering in order to allow consumers to sell power back to the utility, I suppose, and as well as developing a more robust grid. Is that what you're saying? That's right. And recognizing there's a cost to all of it, and we need to be prepared to pay it. And nobody's going to get rich unjustly off of it. We'll all be better off because we'll all be sharing power. And there are a couple of alternatives to net energy. There's wheeling of power. The ability for me as a homeowner to sell some of my electricity to my neighbor or to somebody across town. And so far, Hawaii has steadfastly refused to consider that. It may be time for the commission to consider that and allow it. But that's a decision that's a regulatory decision. It's not a legislation decision. Yeah, that reminds me of a question. I wanted to ask you, was it? So we'll have hearings. We'll have interventions. We'll have lots of issues will be raised. Lots of people will be focusing on getting to cheaper rates. The installers will be focusing on protecting their industry or even building it and so forth. I think I see this as not only a place in which regulations will be issued, but a place that will germinate new legislation as well. A springboard for new legislation of all kinds. I see it as not only the PUC, but the legislature getting involved in this initiative. They're both already involved. And I suspect they'll both be involved in trying to work these things out. How do you feel about that? Well, legislature has taken a huge step forward. It's a bold piece of legislation. It shows that they're serious about changing the service delivery model in the utility sector. And that is a terrific thing. The next thing they've got to do is walk away from what I believe is a seriously flawed policy of relying entirely on oil and coal for power production in the interim until we can get to renewables. And that's really sucking the lifeblood out of Hawaii in terms of the capital costs of keeping this aging plant operational and not modernizing it. Well, I'd like to connect that up with a documentary I saw just last night, Jeff, on PBS. And it was about the state of affairs in Puerto Rico. Puerto Rico has had lots of fiscal problems over the years. And that's a whole other story. It involves bonds that later turned out to be junk bonds from Wall Street. It involves mismanagement. It involves failure to maintain existing power plans and generation equipment and grid equipment. But when that storm came, Maria, last year, that was the pennies on the eyes. Because Puerto Rico had the $70 billion worth of unrepayable debt. Now it had a storm that stopped its economy in its tracks. And it had a power grid that's going to cost a fortune to put back online. And I watched this thing in horror. In horror that Puerto Rico was so ill-prepared for what happened and that FEMA was so ill-prepared and unmotivated to try to help. And the federal government has really let the whole thing come crashing down in Puerto Rico where still there's a lot of areas that have no power. People are connecting the power lines themselves. Individual citizens are out there with their trucks and cranes doing the job themselves because there's nobody else to do it. The place is coming apart. People are leaving. Puerto Rico is in terrible, terrible trouble as a community. And I wonder your thoughts about what we can learn from what happened in Puerto Rico. Because we also have unrepaid and maybe unrepayable liabilities in this state. And we also have a grid that's complex but also independent because we're on an island. And we can't be sure that there's somebody will save us in the event of a disaster. And we have climate change with the notion of extreme storms. It sounds like a following track that this could happen or something like this could happen to us. And I wonder your thoughts about the current action what's being done and what we can do and what the risks are for us as against the scenario in Puerto Rico. Well, it did happen to us. Hurricane Iniki devastated Kauai. The question and it was rebuilt because the president at the time thought it would be very good because he was running for re-election. So the resources poured into Kauai in a huge way. There's no guarantee that that would happen again. And there's certainly no guarantee that it would happen on Oahu. The current administration, I don't think unless you know something I do. Sorry, you know something I don't. The current administration is not particularly fond of the Democratic administration in Hawaii and doesn't view Hawaii's electoral votes as necessary for it to become re-elected. So although Puerto Rico is a recent example and a very tragic example, we lived through it. I don't know how we would survive it again if it actually hit Oahu. And remember that the industry that exists today is tourist space. It's going to be very, very difficult to spend the amount of money that we will need to spend to recover from a major disaster if we have to rebuild the grid entirely in order just to get power running. It's better to spend the money now gradually and improve it and strengthen it than to rebuild it all at once. We all know that, but we lived through it. Yeah, gee, describe that. I have the vision of the tourist industry stopping short, you know, zero tourism because, you know, no power. And then we're stuck without any, that huge source of revenue that we have had and relied on and continue to rely on every day. We have no revenue from our principal source of revenue and yet we have this huge and unplanned for, unfunded obligation to put the grid back in shape, which would cost a lot of money. And in Puerto Rico, it was essentially destroyed. That could happen here. And so both of those factors work in tandem and take the place down. We could have a similar scenario and I totally agree with you. Now is the time to make the grid as resilient as we possibly can. That's the backbone of our society, you know? It certainly is. And again, the legislature deserves a huge amount of credit for taking this initiative and passing this legislation. Now it's going to take community resources, leadership from the state government and certainly from the PUC to get the program implemented so it's working the way it was intended in a reasonable amount of time. What about individuals who might want to, you know, put solar or increase solar on their homes and put storage or increase storage on their homes? What's your advice to them? Should we have this happen at the individual, homeowner level? Or should we have it happen at the grid level, at the utility level? Mind you, a lot of people say that an extreme storm, in an extreme storm, you would want to be self-contained, self-reliant, independent from the grid because that way you'll have your own system, you'll be able to generate power yourself. I mean, what's the solution for the individual homeowner or individual homeowner who would like to invest one way or the other? Well, the trend is, or more and more, multi-family housing. So we, well, the individual homeowner is a really important part of this process. We need to see what we can do to encourage multi-family developments to have community-based renewable energy sources. Whether it's solar or wind or some of the other technologies that are out there, we really need to encourage diversified energy production and distribution. That's been the theme that I have sounded ever since I ran the gas company. We need a diversified source, but we need to diversify our sources of energy, not concentrate them and rely on one and one or one or two sources alone. Well, I think from this discussion, it's clear that this new docket at the PUC comes at the right time. And these questions are really important to going forward, not only in terms of implementing the 100% goal, but in terms of protecting us from all kinds of risks that we will probably have to deal with. So it's very ambitious, it's very challenging. And as you say, it's promising in the sense that we'll have to address these things and maybe come up with some solutions that we would not have otherwise considered. So gee, we're having the new PUC director on the show next Monday, you know, Jeff. That's Jennifer Potter. She was recently appointed and confirmed. So we'll have her for a discussion of the same issues. Well, and I think that's one of the most useful things that you can do is to keep this issue in front of the public and keep the progress known to everybody so that if there are things that people can do, you know, perhaps we need a little more compromise in some of the positions people have taken and get this thing to market and then, you know, modify it, refine it, move it forward over time because the other big unknown is what technology will be out there in the near future that may impact our ability to move forward either more quickly or in a more efficient manner to get less kill-offs done produced at less expensive. Absolutely. Jeff Kissel, a trustee and a distinguished fellow in the Energy Policy Research Foundation, Inc. in Washington, D.C., joining us for discussion of energy in America and, of course, energy in Hawaii. Thank you so much, Jeff. I look forward to seeing you again soon. Likewise, thanks again, Chair. Aloha.