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PUC PSIP Order

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Public Utilities Commission Order on HECO Power Supply Plan

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PUC PSIP Order

  1. 1. BEFO RE THE PUBLIC UTILITIES CO M M ISSIO N O F THE STATE O F HAW AII In the M atter of PUBLIC UTILITIES CO M M ISSIO N ) ) Instituting a Proceeding to ) Review the Power Supply ) Im provem ent Plans for Hawaiian ) Electric Com pany, Inc., Hawaii ) Electric Light Com pany, Inc., and) M aui Electric Com pany, Lim ited. ) ) DECISION AND ORDER NO. DOCKET NO. 2014-0183 3 4 6 9 6 “W czo c :j oi— — c:-H o — n ■D 'n m
  2. 2. TABLE O F CO NTENTS I. INTRO DUCTIO N....................................................................................................2 II. BACKGROUND AND PRO CEDURAL HISTO RY .................................................... 5 III. THE REPO RT........................................................................................................9 IV. STATEM ENTS O F PO SITIO N............................................................................11 A. Im provem ents O ver Prior PSIP Filings...................................12 B. Future Resource Procurem ent ..................................................... 14 C. Recom m endations for Future Planning ................................... 15 D. Proposed New Fossil Fuel G eneration.....................................17 E. M odeling Process and Assum ptions .......................................... 19 F. DER .........................................................................................................21 G . Custom er BillIm pacts....................................................................22 V. DISCUSSIO N..................................................................;..............................23 A. O verview ................................................................................................23 B. High Priority Near-Term Actions ............................................ 27 1. C om petitive Procurem ent of G rid-Scale Renewable Resources ............................................................. 27 2. Actions Related to CBRE and DER Integration ......... 29 3. System -Level G rid R eliability Projects .................... 31 C. Com m ission Concerns w ith the R eport.....................................32 1. Custom er Rate and BillIm pacts.......................................33 2. New Conventional G eneration Resources ...................... 35 3. BESS and Synchronous Condensers .....................................37 4. Transm ission System Projects .......................................... 39
  3. 3. Topics Requiring Further Analysis..............................................41 1. Achieving RPS G oals..........................................................41 2. M olokai and Lanai Advanced 100% Renewable Energy Plans ...................................................................... 42 3. System Security Requirem ents ...................................... 43 E. Expectations for Im plem entation ........................................ 45 F. Future Planning Activities .................................................. 48 O RDERS................ 50
  4. 4. BEFO RE THE PUBLIC UTILITIES CO M M ISSIO N OF THE STATE O F HAW AII In the M atter of PUBLIC UTILITIES CO M M ISSIO N Docket No. 2014-0183 O rder No.3 4 6 9 6 ) ) Instituting a Proceeding to ) Review the Power Supply ) Im provem ent Plans for Hawaiian ) Electric Com pany, Inc., Hawaii ) Electric Light Com pany, Inc., and) M aui Electric Com pany, Lim ited. ) ) DECISIO N AND ORDER By this D ecision and O rder, and subject to the conditions set forth herein, the State of Hawaii Public U tilities Com m ission ("com m ission") accepts the Hawaiian Electric Com panies' PSIPs Update Report ("R eport"),^ provides guidance regarding im plem entation and future planning activities, and closes this docket.2 ^"The Hawaiian Electric Com panies' PSIPs Update Report, Filed Decem ber 23, 2016, Books 1-4," filed on Decem ber 23, 2016 in the instant docket. 2The Parties to this docket are: (1) Hawaiian Electric Com pany, Inc. ("HECO "), Hawaii Electric Light Com pany, Inc. ("HELCO "), and M aui Electric Com pany, Lim ited ("M ECO "), (collectively, the "HECO Com panies" or the "Com panies"); (2) the Consum er Advocate, an ^ officio party to this proceeding, pursuant to Hawaii Revised Statutes ("HRS") § 269-51 and Hawaii Adm inistrative Rules ("HAR") § 6-61-62(a); the Intervenors, pursuant to
  5. 5. I. INTRO DUCTIO N O n August 1, 2014, the com m ission instituted this proceeding to review the power supply im provem ent plans ("PSIPs") filed by Hawaiian Electric Com pany, Inc. ("HECO ")» Hawaii Electric Light Com pany, Inc. ("HELCO "), and M aui Electric Com pany, Lim ited ("M ECO ") (collectively, the "HECO Com panies" or "Com panies"). By this order, the com m ission accepts the Report and provides guidance for im plem enting the near-term actions identified in the PSIPs. The Com panies' near-term action plans and long-range analysis provide useful context for evaluating pending and future operational decisions and resource acquisition alternatives. O rder No. 33320 at 175: (3) the County of M aui ("CO M "); (4) the Departm ent of Business, Econom ic Developm ent, and Tourism ("DBEDT"); and (5) the County of H aw ai'i ("CO H"); the Participants, pursuant to O rder No. 33320 at 175: (6) Renewable Energy Action C oalition of Hawaii, Inc. ("REACH"); (7) Life of the Land ("LO L"); (8) HawaiiSolar Energy Association ("HSEA") ; (9) Puna Pono Alliance ("Puna Pono"); (10) The Alliance for Solar Choice ("TASC"); (11) Hawaii Renewable Energy Alliance ("HREA"); (12) The G as Com pany, LLC, dba Hawaii G as ("Hawaii G as"); (13) AES Hawaii, Inc. ("AES"}; (14) Blue Planet Foundation ("Blue Planet"); (15) Ulupono Initiative LLC ("Ulupono"); (16) Hawaii PV C oalition ("HPVC"); (17) Sierra Club; (18) Taw hiri Power LLC ("Taw hiri"); (19) SunPower C orporation ("SunPower"); (20) Paniolo Power Com pany, LLC ("Paniolo"); (21) Eurus Energy Am erica C orporation; (22) First W ind H oldings, LLC; and (23) the D istributed Energy Resources C ouncil of Hawaii ("DERC") (adm itted as a Participant in O rder No. 33388, filed on Decem ber 11, 2015 in this docket). Except as specifically otherw ise noted, the use of the term "Parties" in this O rder refers, collectively, to the Parties and the Participants. 2014-0183 2
  6. 6. The com m ission is confident that m any of the Com panies' proposed near-term actions pertaining to renewable energy developm ent are supported by sound analysis and are consistent w ith State energy policy and prior com m ission orders. These proposed actions include com pany-wide plans for com petitive procurem ent of grid scale renewable resources; successful im plem entation of the com m unity-based renewable energy program ("CBRE"), dem and response ("DR"), and distributed energy resource ("DER") program s; and certain utility actions to im prove the reliability of each island grid. The com m ission now expects the Com panies to advance these elem ents of the near-term action plans, and offers further guidance on these elem ents in Section V.B., below. The com m ission also finds that certain projects in the near-term action plans are not sufficiently justified by the analysis in the Report. These projects include certain proposed conventional generation plants, utility-ow ned battery energy storage system s ("BESS"), proposed synchronous condensers, and certain proposed transm ission projects. The com m ission w ill require further analysis, including thorough analysis of alternatives, during review of capital expenditures and any applications for these projects. Section V.C ., below, contains further guidance related to these proposed projects. The com m ission expects the Com panies to continuously im prove and 2014-0183 3
  7. 7. refine their resource planning tools and m ethods, and em ploy these tools to support appropriate com petitive procurem ent processes and project applications in the near term . O verall, the com m ission finds significant im provem ents in the Report over the previous PSIPs filed in this docket. The Com panies have expanded the scope of theiranalysis, and engaged new planning tools to better address the substantial planning challenges they face. Com pared to prior filings, the Report is m ore transparent, incorporates additional stakeholder input, and addresses several of the com m ission's previously stated concerns regarding analysis. In addition, the high-quality stakeholder input throughout this proceeding has im proved both the planning process and the resulting plans. The com m ission appreciates the significant effort expended by all Parties, whose continued engagem ent and respectful dialogue have m arkedly im proved the results. Subject to the conditions and guidance set forth in this O rder, the com m ission accepts the Report, including the near-term action plans, and directs the Com panies to focus their efforts on im plem enting these plans. The com m ission w ill use the Report to provide context for furtherconsideration and analysis in the review of subsequent com petitive procurem ent processes and applications 2014-0183
  8. 8. for approval of specific resources, projects, and contracts, as appropriate.^ II. BACKGROUND AND PRO CEDURAL HISTO RY^ O n April28, 2014, the com m ission issued four O rders^ that collectively provided broad guidance on electric utility planning and operations, including instructions to the HECO Com panies to develop and file PSIPs, and the initialrequirem ents that the PSIPs should address.® In addition, the com m ission m ade clear that the PSIPs should incorporate the guidance set forth in the Commission's Inclinations on the Future of Hawaii's Electric Utilities 3See O rder No. 33877 at 14; O rder No. 33320 at 2. “*A m ore exhaustive procedural history of this docket is provided in O rder No. 33877 at 6-9. ®See In re Public U til. Com m 'n, Docket No. 2012-0036, D ecision and O rder No. 32052, filed April 28, 2014 ("O rder No. 32052"); In_____rePublic_____U til.Com m 'n, Docket No. 2011-0206, D ecision and O rder No. 32053, filed on April 28, 2014 ("O rder No. 32053"); In re Public U til. Com m 'n, Docket No. 2007-0341, O rder No. 32054 "Policy Statem ent and O rder Regarding Dem and Response Program s," filed on April 28, 2014 ("O rder No. 32054"); and In re Public U til. Com m 'n, Docket No. 2011-0092, D ecision and O rder No. 32055, filed on April28, 2014 ("O rder No. 32055"). ®O rder No. 32055 at 87-93; In re Hawaii Elec.Light Co., Docket No. 2012-0212, D ecision and O rder No. 31758, filed on Decem ber 20, 2013, at 113-121; and O rder No. 32053, at 68-69. 2014-0183
  9. 9. ("Com m ission's Inclinations"),"^ which detailed the com m ission's broader perspectives on aligning the HECO Com panies' investm ents and business m odel w ith custom er needs and the State's public policy goals. O n August 7, 2014, the com m ission opened this docket to consolidate the review of the PSIPs filed by the HECO Com panies.® In describing the purpose of the PSIPs, the com m ission stated: The PSIPs are to include actionable strategies and im plem entation plans to expeditiously retire older, less-efficient fossilgeneration, reduce m ust-run generation, increase generation flexibility, and adopt new technologies such as dem and response and energy storage for ancillary services, and institute operational practice changes, as appropriate, to enable integration of a diverse portfolio of additionallow cost renewable energy resources, reduction of energy costs and im provem ents in generation operational efficiencies.® O n Novem ber 4, 2015, the com m ission issued O rder No. 33320, in response to the PSIPs filed by the HECO Com panies on August 26, 2014. The com m ission identified eight observations and concerns ("O bservations and Concerns" regarding those PSIPs and provided the follow ing initialstatem ent ^O rder No. 32052, Exhibit A. ®In re Public U til. Com m 'n, Docket No. 2014-0183, D ecision and O rder No. 32257 ("O rder No. 32257"), filed on August 7, 2014, at 1. ®O rder No. 32052 at 72-73. loO rder No. 33320 at 3-7. 2014-0183 6
  10. 10. of issues ("Initial Statem ent of Issues") for the review , supplem entation, am endm ent, and update of the PSIPs: 1. W hether the PSIPs, as am ended and updated in this proceeding, provide useful context and m eaningful analysis to inform m ajor resource acquisition and system operation decisions and identify w ell-reasoned and adequately-supported plans and actions that w ill result in reliable energy services, m eeting State clean energy requirem ents, w hile ensuring that costs and rates w ill be reasonable. 2. W hether the PSIP foreach ofthe HECO Com panies, as am ended and updated in this proceeding, includes reasonable plan com ponents as required for HECO in O rder No. 32053, including: a. a Fossil G eneration Retirem ent Plan; b. a G eneration Flexibility Plan; c. a M ust-Run G eneration Reduction Plan; d. an Environm ental Com pliance Plan; e. a Key G enerator U tilization Plan; f. an O ptim al Renewable Energy Portfolio Plan; and g. a G eneration Com m itm ent and Econom ic D ispatch Review. 3. W hether the PSIPs, as am ended and updated, adequately address the O bservations and Concerns . . . i^Order No. 33320 at 138-139 2014-0183
  11. 11. In response to O rder No. 33320, on April 1, 2016, the HECO Com panies filed their PSIP Update w ith the com m ission. O n June 3, 2016, the com m ission solicited com m ents on the PSIP Update. The com m ission particularly sought com m ents regarding the InitialStatem ent of Issues, and "specific procedural steps the com m ission should consider to ensure constructive further progress in this docket. O rder No. 33877 established the procedural schedule for the rem ainder of this docket. O n August 26, 2016, the Com panies filed a m otion for clarification of O rder No. 33877. N otw ithstanding the Com panies" m otion, pursuant to O rder No. 33877: (1) on Septem ber 7, 2016 the Com panies filed a work plan detailing their analyticalapproach and the necessary steps to finalize their ^^The HECO Com panies hosted public m eetings to discuss the PSIP Update w ith interested stakeholders on M ay 17, 2016, and June 29, 2016. i3in Public U til. Com m 'n, Docket No. 2014-0183, O rder No. 33740 {"O rder No. 33740"), filed June 3, 2016, at 4-5. i^O rder No. 33740 at 4. ^^"Hawaiian Electric Com panies M otion for C larification of O rder No. 33877" ("M otion for C larification"), filed on August 26, 2016. By their M otion for C larification, the Com panies seek clarification regarding the focus and scope of the plans, the analysis the com m ission requires, and confirm ation that its proposed approach to com pleting its work in this docket is consistent w ith the com m ission's prior orders. Because the com m ission is accepting the Report and is closing this docket, the M otion for C larification is now m oot. 2014-0183
  12. 12. PSIPs; (2) on Septem ber 21, 2016 and again on O ctober 3, 2016, the com m ission held technical conferences, prior to each of which, the Parties subm itted questions to be asked at the technical conferences; (3) on Decem ber 23, 2016, the Com panies filed the R eport; (4) the Parties filed their inform ation requests {"IR s") and responses thereto; and (5) the Parties filed their statem ents of positions ("SO Ps") . III. THE REPORT The Report includes an executive sum m ary, seven chapters, and seventeen appendices.According to the Com panies, the Report outlines "a detailed plan charting the specific actions for the years 2017 through 2021 to accelerate the achievem ent of H aw aii's 100 percent Renewable Portfolio Standard {"RPS") by 2045."^® The Report details the analyses and procedures the Com panies used to determ ine several alternative long range resource plans and, ultim ately, the specific actions in the near-term action plans. ^®0rder No. 33877 at 6-9. ^ ^The Com panies also provided additionalvolum inous supporting data on an internet site accessible to the com m ission and Parties. i®Report at ES-1. 2014-0183
  13. 13. The Report explains how the Com panies developed their candidate long-range plans, utilizing several optim ization m odels, including four candidate plans for the Island of O ahu, and two plans each for the Islands of M aui and Hawaii.^® The Com panies refined these candidate plans based on m ore detailed production cost m odeling analysis, by further considering DER, including DR resources,20 and by analyzing system security requirem ents.21 Based on these analyses and several "planning and analysis considerations," the Com panies developed the near-term action plans.22 Chapter 7 of the Report presents the Com panies' near-term action plans, which identify "a set of actions that m ust be taken to continue on the path of reaching our 100% renewable energy goal."23 The near-term action plans include "com pany-wide action 3-9These plans are identified in Chapter 4 of the Report. The Com panies identified and developed two additional long-range plans for each of the Islands of Lanai and M olokai w ithout using optim ization m odeling. 20See Report at 3-6 to 3-17. In addition to the plans developed by the optim ization m odeling, the Com panies analyzed a previously developed "Post-April PSIP Plan" for the Islands of O ahu, M aui, and Hawaii. 2^See Report 3-17 3-18 and Appendix System Security Analysis. 22See Report, Chapter 6. 23Report at 7-1. 2014-0183
  14. 14. plans" and an action plan for each of the five island utility system s, for the years 2017-2021. The near-term action plans contain elem ents including acquisition of new renewable generation resources, grid m odernization, developm ent of DER policies, achievem ent of environm ental com pliance, and system level im provem ent projects.^® IV. STATEM ENTS O F PO SITIO N O n February 13, 2017, the Parties filed their SO Ps on the Report. The com m ission appreciates the Parties' in-depth review of the Report, detailed com m ents on the plans, and suggestions for future planning efforts. The com m ission notes severalcom m on them es am ong the SO Ps. M any Parties state that the revised PSIPs show m ajor im provem ent from prior efforts, and that the Report should be accepted. Several Parties provide recom m ended next steps to establish a m ethodology for procurem ent decisions. Although there is general agreem ent that the PSIPs are substantively im proved, m any Parties rem ain concerned about how certain assum ptions were forced into the m odels, and how this m ay have biased the m odeling results to 2^Report, Chapter 7 25Report, Chapter 7 2014-0183 11
  15. 15. disproportionately favor utility-ow ned assets. N evertheless, the Parties generally agree that the PSIPs provide enough inform ation to m ove forw ard w ith project procurem ent. Below, the com m ission sum m arizes several com m on them es expressed throughout the Parties' SO Ps, including: (a) im provem ents over prior PSIP filings; (b) future resource procurem ent; (c) recom m endations for future planning; (d) proposed new fossilfuelgeneration; (e) m odeling processes and assum ptions; (f) DER; and (g) custom er billim pacts. A. Im provem ents O ver Prior PSIP Filings Several Parties acknowledge the significant im provem ents to the planning process. The Consum er Advocate points out that the Report utilized several m odeling tools to com pare and validate various resource plan options, incorporated stakeholder input, and re-evaluated inputs and assum ptions. The Consum er Advocate states that the revised PSIPs "show a reasonable integration of various resource considerations. DBEDT com m ends the HECO Com panies form aking the planning process m ore transparent: 26«Division of Consum er Advocacy's February 14, 2017 Statem ent of Position in Response to O rder No. 34103; and C ertificate of 2014-0183
  16. 16. As com pared to two years ago, DBEDT today has a m ore transparent vantage point w ith respect to the HECO Com panies' developm ent of their resource plans, in particular regarding the exchange of data and analysis. The ability to participate in the HECO Com panies' internal planning m eetings is evidence of this transparency and has proved valuable to DBEDT in developing its positions.^^ Blue Planet states that the transparent optim ization m odeling utilized in the Report is effective and beneficial. To illustrate the value that this process has provided. Blue Planet notes that ”[t]he total forecasted revenue requirem ent forecasted for the Com panies com bined in the E3 Plan is $2.4 billion less than the non-optim ized Post-April 2016 Plan."^® Although Ulupono states that itcannot draw the conclusion that the entire near-term action plan is the least-cost or best m ix of resources, Ulupono m aintains that the Report provides enough inform ation to take "m eaningful near-term actions now, and resolve Service" ("Consum er Advocate SO P"), filed on February 14, 2017, at 11. 27«The Departm ent of Business, Econom ic Developm ent, and Tourism 's Statem ent of Position on the Hawaiian Electric Com panies' Revised and Supplem ented Power Supply Im provem ent Plans, and C ertificate of Service" ("DBEDT SO P"), filed on February 14, 2017, at 6. 2®"Blue Planet Foundation's Statem ent of Position on the Decem ber 23, 2016 Power Supply Im provem ent Plan Update; and C ertificate of Service" ("Blue Planet SO P"), filed on February 14, 2017, at 3. 2014-0183
  17. 17. the strategic uncertainties that rem ain in a m atter of m onths, not years."29 B. Future Resource Procurem ent The HECO Com panies, DBEDT, Blue Planet, and Ulupono all em phasize that there is an urgent need to quickly procure renewable generation w hile there are stillfederal tax credits available and to take advantage of current low interest rates. Ulupono m ore explicitly states that the com m ission "should approve the issuance of an all-source RFP for utility-scale firm and non-firm renewable power on allcounties in 2017, 2020, and 2022. Although DBEDT generally supports procuring renewables, DBEDT has concerns about the Com panies' proposed procurem ent approach and m ethodology. DBEDT states: There is a lack of sufficient evidentiary support or explanation in the PSIPs to dem onstrate that the m etrics and criteria the HECO Com panies w ill apply in com paring proposals w illresult in procurem ent decisions that are consistent w ith the PSIPs and State energy policies. 25«uiupono Initiative LLC's Statem ent of Position; Exhibit A; and C ertificate of Service" ("Ulupono SO P"), filed on February 14, 2017, at 24. 3°Ulupono SOP at 14. 31DBEDT SOP at 7. 2014-0183
  18. 18. DBEDT further questions the HECO Com panies' m ethodology for establishing separate blocks forthe evaluation of firm and variable generation, and how the Com panies w illcom pare and adjust the blocks of energy between the two. Finally, DBEDT doubts the Com panies' m ethodology foranalyzing each resource separately to determ ine cost savings, and the Com panies' proposal to use criteria based on a net present value m ethodology to determ ine benefits. Taw hiri recom m ends that all new renewable resources "m ust be procured in a m anner that is totally agnostic w ith respect to both technology and the resources involved.Paniolo em phasizes that allnew generating resources should be com petitively bid and not assum ed to be owned by the utility. Paniolo suggests that the HECO Com panies issue an energy storage request forproposals ("RFP") that is technology neutral for the Big Island, so that both BESS and pum ped storage hydroelectric power ("PSH") are considered. C. Recom m endations for Future Planning M any ofthe Parties provide sim ilarsuggestions forfuture planning processes. The Consum er Advocate m aintains that the PSIPs 32«Tawhiri Power LLC's State of Position on the Revised and Supplem ented Power Supply Im provem ent Plans of Hawaiian Electic [sic] Com pany, Inc., Hawaii Electric Light Com pany, Inc., and M aui Electric Com pany Lim ited; and C ertificate of Service," ("Taw hiri SO P"), filed on February 14, 2017, at 5. 2014-0183
  19. 19. should be a '‘'working plan to be periodically updated and revisited[/] and that "HECO and stakeholders need to continuously seek im provem ents to the planning process."^4 The HECO Com panies propose that the next cycle of updating the PSIPs should begin in 2019, pursuant to which updated plans would be subm itted in 2020. The Com panies state that "[s]uch tim ing would allow the Com panies to focus on executing the Near-Term Action Plan, and draw upon the Com panies' experiences and findings from RFPs and developm ents in DER and DR, which could be used as inputs for the next PSIP effort."^^ DBEDT recom m ends that future planning processes should be refined "to ensure resulting plans are resilient to uncertainty."^® DBEDT further recom m ends m ore transparent analysis on siting, sizing, and selection of proposed resources, w ith respect to security during em ergencies.^"^ Ulupono proposes the follow ing steps forthe nextplanning process: (1) define the strategic issues; (2) agree on transparent ^^Consum er Advocate SOP at 18 (em phasis in original). ^^Consum er Advocate SOP at 13. 35«Hawaiian Electric Com panies' Statem ent of Position; and C ertificate of Service" ("Com panies' SO P"), filed on February 14, 2017, at 3. 3®DBEDT SOP at 19. ^ ^DBEDT SOP at 21. 2014-0183
  20. 20. m ethodology; (3) agree on m odel inputs w ith all stakeholders, the Consum er Advocate, and com m ission staff; (4) create an interim report w ith stakeholder input and inquiry; (5) have the HECO Com panies subsequently conduct the detailed engineering and planning; and (6) ensure the action plan is based on the planning process, not the Com panies' business decisions.^® Blue Planet m aintains that future planning analyses should continue to use objective optim ization via capacity expansion m odeling.®® Blue Planet recom m ends that the com m ission im m ediately com m ence the next planning cycle, issue guidelines on the roles of the Com panies, consultants, and stakeholders in thatplanning cycle, and set appropriate m ilestones and tim elines D. Proposed New Fossil Fuel G eneration M any Parties stated concerns w ith the Com panies' proposed new fossil fuel generation resources -- the 100 M W Joint Base Pearl Harbor-Hickam ("JBPHH") plant and the 54 M W Kaneohe M arine Corps Base Hawaii ("KM CBH") plant. Specifically, Parties opposed how the Com panies m anually selected the JBPHH and KM CBH plants, ®®See Ulupono SOP at 30. ®®See Blue Planet SOP at 3-4 40Blue Planet SOP at 20. 2014-0183 17
  21. 21. and forced them into the optim ization m odels. The Consum er Advocate believes that additional data and analyses are necessary to assess ifthe JBPHH and KM BCH projects are in the public interest. DBEDT is concerned that the m anual selection of these plants "w ill box out/influence the renewable options chosen in the future" and "whether the HECO Com panies w illbe responsible for the costs ifthe m anually selected resources are retired.'"*^ The Joint Parties state that Com panies also treated the JBPHH plant, the KM CBH plant, and the 18 M W com bustion engine power plant proposed to be installed in South M aui in 2022, "as 'fixed assum ptions,' 'm ust build' resources . . . effectively circum venting and nullifying the planning process.U lupono argues that the Com panies' analysis dem onstrates that the proposed JBPHH and KM CBH plants are not the least cost choices and should not be justified as w aiver projects.^^ Ulupono also indicates that "[w ]hen RESO LVE was allowed to optim ize the construction plan for these projects, 41DBEDT SOP at 22. ^2«sierra C lub's D istributed Energy Resources C ouncil of H aw aii's Hawaii Solar Energy Association's, and SunPower C orporation's Statem ent of Position RE Hawaiian Electric Com panies' PSIP Update Report, filed on Decem ber 23, 2016; and C ertificate of Service" {"Joint Parties SO P"), filed on February 14, 2017, at 14 (Sierra Club, DERC, HSEA, and SunPower are collectively referred to as the "Joint Parties" in this O rder). ^^ulupono SOP at 3. 2014-0183
  22. 22. total resource costs were lowered by postponing these investm ents until2045. E. M odeling Process and Assum ptions Several Parties provided detailed feedback about other constraints and assum ptions that the Com panies applied to their analyses, particularly w ith respect to the HELCO system . Taw hiri expressed concern that there is a "lack of consistency and possible bias in the evaluation of wind energy investm ent in Hawaii County."4s W ith respect to the wind generation on the HELCO system , Paniolo states "[t]he fact that the entire 70 M W was not procured in 2020 appears to be the result of an artificial 20 M W transm ission constraint on wind generation for the year 2020 that was forced into the E3 RESO LVE m odeling by the HECO Com panies."46 Paniolo states that the "Near-Term Action Plans should reflect the m ore optim al, earlier procurem ent of 70 M W of wind in 2020, even if project is installed in phases."4"^ 44uiupono SOP at 16. 45Tawhiri SOP at 2. 46"Paniolo Power Com pany, LLC's Statem ent of Position; and C ertificate of Service" ("Paniolo SO P"), filed on February 14, 2017, at 13 (internal citations om itted). 4'^Paniolo SOP at 14. 2014-0183
  23. 23. Taw hiri calls attention to HELCO 's use of a single wind generation profile in allsim ulations of wind energy investm ents, and suggests that the "proper approach is to use m ultiple wind generation profiles w ith each profile representing a specific geographic location am ong the alternative wind energy resources (farm s) under evaluation for each plan."^® Paniolo states thatthe Reportdoes not disclose tradeoffs between alternative resource options, particularly regarding storage,Paniolo questions why BESS was selected over PSH w ithout identifying the tradeoffs between the two resources. Paniolo states that itis unclear why the HECO Com panies opted to assum e a low-end useful life figure for PSH, w hile opting to use a high-end useful life assum ption for BESS, and m aintains that the figures used for the useful life assum ptions should be equal. 48Tawhiri SOP at 5. ^^See Paniolo SOP at 7. ^°See Paniolo SOP at 7. ^^See Paniolo SOP at 8. 2014-0183
  24. 24. F. DER Blue Planet suggests that the role of DER is a m ain issue that rem ains "unresolved" in the R eport.Blue Planet recom m ends that future planning efforts should develop m ethods to evaluate and incorporate energy efficiency in relation to other resource options.53 The Joint Parties state that the m odeling analyses did not pair distributed solar w ith distributed energy storage, but rather m odeled storage as an independent resource.54 The Joint Parties further state that "this m ay have resulted in the selection of separate utility-scale battery resources, but ignored the benefits of 'sm art'DER system s com bining solarand batteries55 Ulupono com m ends "the HECO Com panies for the extensive circuitby circuitgrid-side planning in PSIP Section N, as w ell as for the transparency of the m ethodology and analysis."5® Ulupono affirm s that the HECO Com panies have perform ed extensive system security analysis, but notes that "long and m id-term system security requirem ents would change if 'sm art export'" 52Blue Planet SOP at 2. 53Blue Planet SOP at 16. 54joint Parties SOP at 10. 55joint Parties SOP at 9. 56ulupono SOP at 19. 2014-0183
  25. 25. was evaluated.U lupono expresses concern that the Report does not analyze how the potential for sm art export could lower ancillary service dem ands and the need for "extensive utility sided batteries and grid upgrades. G . Custom er BillIm pacts Several Parties are concerned about the projected long-term increase in electric rates. COH is especially concerned about the im pact increases w illhave on ratepayers on the Island of Hawaii and recom m ends that future planning efforts include an "over-arching cost-controlprocess . . . Paniolo is concerned w ith the "detrim ental im pacts of prolonged high electricity rates outlined in the PSIPs . . . The HECO Com panies discuss how the rate projections resulting from the PLEXOS outputs "should not be used as precise long-term projections of custom er rates. The Com panies explain that the value of these projections "is not s’^Ulupono SOP at 27. seulupono SOP at 27. ^^"County of Hawai'i's Statement of Position; and Certificate of Service" ("COH SOP"), filed on February 14, 2017, at 15. ®°See Paniolo SOP at 3, ®^Companies' SOP at 14. 2014-0183
  26. 26. in the precise values but in the relative results of planning to provide context to inform im portant pending and future resource acquisition and system operation decisions. V. DISCUSSIO N A. O verview As the com m ission observed at the outset of this proceeding, each electric utility's power supply system is becom ing m ore com plex and operationally challenging as greater quantities of diverse renewable energy resources are integrated w ith older, relatively inflexible base load fossil-fuelgeneration resources. In the m ore than two and a half years since this proceeding began, com plexities in the islands' electric system s have only increased, in large part because of continuing developm ents in DER, such as rooftop PV. G iven the length of tim e that has passed since the com m ission and Parties first began this docket, it is useful to ®2Com panies' SOP at 14. ®^O rder No. 32257 at 1 (citations om itted) 2014-0183
  27. 27. revisit the intended purpose and expectations of the Com panies' PSIPs. As the com m ission has previously stated: [t]he ultim ate purpose of this proceeding is to determ ine a reasonable power supply plan for each of the HECO Com panies that can serve as a strategic basis and provide context to inform im portant pending and future resource acquisition and system operation decisions.® ^ The com m ission has repeatedly stressed that the developm ent of w ell-vetted, credible, com prehensive system analysis®® is "essential to the HECO Com panies fulfilling their role to provide a platform to m eet the diverse service requirem ents of their custom ers by integrating a variety of generation sources and custom er-sited resources in an econom ically and operationally efficient manner."®® The com m ission acknowledges the challenges inherent in long-term forecasting and analysis, particularly where, as here, the underlying inputs and assum ptions are dynam ic and subject to significantuncertainty over the next decade or m ore. Accordingly, the com m ission has stated its expectation that the PSIPs "should place particular em phasis on identifying and supporting the near-term actions, applications, and decisions necessary ®4Q rder No. 33320 at 2. ®®See O rder No. 33320 at 40-41. ®®0rder No. 33320 at 137. 2014-0183
  28. 28. to effectively m eet identified challenges, policy goals, and planning objectives."® "^ Although the instant proceeding has proven to be an extensive undertaking, the com m ission can now affirm that the objectives outlined above have largely been m et, subject to the concerns articulated herein. The PSIPs in the Report reflect significant im provem ents over the previous PSIPs filed in this docket. The Com panies have expanded the scope of their analysis, and engaged new planning tools to better address the substantial planning challenges they face. The Com panies have m ade their filings m ore transparent, incorporated additional stakeholder input, and addressed m any of the com m ission's previously stated concerns. The result is a set ofplans thatprovides usefulcontext form aking inform ed decisions regarding the near-term path forw ard. The com m ission appreciates the significant effort expended in this proceeding by the HECO Com panies, the Consum er Advocate, and allParties, whose continued engagem ent and respectful dialogue have helped develop an extensive record in this docket. Afterreview , com m ission has reasonable assurance that m any of the actions identified in the near-term action plans are credible, supported by sound judgm ent and analysis, inform ed by stakeholder input, and consistentw ith State energy policy and prior ®"^O rder No. 33877 at 15. 2014-0183
  29. 29. com m ission orders. Thus, the com m ission believes that the Com panies' analyses are sufficient to provide context and inform near-term procurem ent and resource acquisition.® ® As a result, the com m ission expects that the Com panies w ill continue im plem enting the valid aspects of the PSIPs. N otwithstanding the urgent need to prudently im plem ent the near-term action plans, the com m ission has concerns w ith several aspects of the PSIPs. The com m ission has identified areas that require additional im provem ents, analyses, or justification to address rem aining questions or concerns. These are not "fatal flaw s," but rather are areas the com m ission expects all Parties w ill continue to address either in parallel proceedings (e.g.. Docket No. 2014-0192), through the Com panies' subm ission of discrete project applications, or as part of the next planning cycle. The PSIPs that resulted from this proceeding should not be viewed as a prescriptive plan for future, but a useful snapshot of the Com panies' dynam ic and ongoing planning efforts. In sum , by this D ecision and O rder, subject to the conditions set forth in herein, the com m ission accepts the Report, and directs the Com panies to continue im plem enting the near-term action plans, particularly those elem ents described in Section V.B., below. ®®See O rder No. 33320 at 2. 2014-0183
  30. 30. The follow ing sections ofthis O rder discuss high priority near-term actions in the Com panies' resource plans, describe the com m ission's concerns w ith certain aspects of the plans, identify topics for further analysis, and offer guidance regarding the Com panies' future efforts to continuously refine and im prove their planning approach. B. High Priority Near-Term Actions The com m ission is encouraged by the Com panies' com m itm ents to com petitively procure new grid-scale renewable resources, to continue to work w ith stakeholders to develop CBRE and DER program s, and to im plem ent system -level reliability im provem ents for each island grid. These high-priority near-term actions are discussed in detail, below. 1. C om petitive Procurem ent of G rid-Scale Renewable Resources The Com panies' resource plans include procurem ent of nearly 400 M W of new renewable resources across all service territories by 2021.®® C ollectively, this represents the largest new generation procurem ent ever undertaken in the State. There is ®®See Report, Chapter 7. 2014-0183
  31. 31. broad stakeholder support for acquiring new renewable resources, as w ellas significantdeveloper interestin m eeting H aw aii's needs. Furtherm ore, the Com panies m ust m ove quickly to enable custom ers to benefit from available tax credits, such as the federal investm ent tax credit ("ITC "), which is set to expire w ithin the near-term action plan period. As such, the com m ission expects the Com panies to devote attention and resources to ensure a transparent, tim ely, and successful procurem ent process. The com m ission intends to open a series of new dockets to serve as repositories for filings related to the planned upcom ing procurem ents. As part of the developm ent of the procurem ent process, the Com panies should carefully consider the design of each RFP, including the quantity of energy and grid services requested, eligible technologies, the interconnection study process, the com plexity and risks associated w ith m odel power purchase agreem ents ("PPAs"), the tim eline to com plete the procurem ent process, the availability of incentives (e.g., the federal ITC), and the sequencing of future procurem ents at known intervals to provide greater transparency to m arketparticipants and reduce costs to custom ers. The Com panies m ust learn from and im prove upon prior ^°As the com m ission recently stated, it expects that the Com panies w ill fully consider energy storage system s in proposing any new generation projects. In re Hawaiian Elec. Co., Docket No. 2016-0342, D ecision and O rder No. 34676, ("O rder No. 34676") filed on June 30, 2017, at 79. The com m ission 2014-0183
  32. 32. procurem ent attem pts, including the recent energy storage and w aiver project solicitations. There are benefits and drawbacks to every procurem ent approach; thus, the com m ission expects the Com panies to solicitand incorporate feedback from stakeholders where appropriate, as w ell as the Independent O bserver, during the drafting of future requests for proposals and m odel PPAs. In sum , the com m ission encourages the Com panies to use upcom ing procurem ents as opportunities to continue to collaborate w ith stakeholders to ensure a high-quality approach that fairly considers alternatives and prom otes the tim ely and successful deploym ent of cost-effective renewable resources for custom ers" benefit. 2 . Actions R elated to CERE and PER Integration The com m ission views the ongoing developm ent of CBRE and DER program s as high priorities for near-term action by the HECO Com panies. These efforts are currently the subject of views energy storage, such as battery storage or PSH, as an essential elem ent in achieving the State's goals to integrate increasing levels of renewable energy generation into the State's island grids and "a viable option for supporting the integration of low cost renewables into the grid, w ith the capacity to provide fully dispatchable renewable energy." O rder No. 34676 at 79-80. "^^See Public U til. Com m 'n, Docket No.03-0372, D ecision and O rder No. 23121, Exhibit A, Section III.C , at 13-16. 2014-0183
  33. 33. Docket Nos. 2015-0389, 2014-0192, and 2015-0412, am ong others. The com m ission supports m any of the actions identified by the Com panies, including procurem ent of diverse CERE projects; further developm ent of DER program s (e.g., "sm art export" tariffs), activation of advanced inverter functions for DER, further im provem ents to the interconnection process (e.g., offering an online application portal), developm ent of a DR portfolio that provides valuable grid services from custom ers, and continued investm ent by the Com panies in research, developm ent, and dem onstration projects. The com m ission rem ains very supportive of the use of energy efficiency and cost effective DR resources to resolve operating needs, m eet system reserve requirem ents, defer the need for future capacity additions, provide ancillary services and assist w ith the integration of additional renewable energy resources, and prom ote the reliable and econom ical operation of the electricalgrid.'^^ These proposed actions are consistent w ith the State's energy policy and prior com m ission orders. Thus, the Com panies should accelerate their efforts to m ake m eaningful near-term progress on these topics in relevant parallelproceedings. *^^See In re Public U til. Com m 'n, Docket No. 2007-0341, O rder No. 32054 "Policy Statem ent and O rder Regarding Dem and Response Program s," filed on April 28, 2014, at 1-2. 2014-0183
  34. 34. 3 . System -Level G rid R eliability Projects In the R eport, the Com panies propose to m ake several system -level grid reliability im provem ents, including upgrades to the under-frequency load shedding ("UFLS") schem e and projects to reduce faultclearing tim e. The HECO Com panies have discussed these im provem ents for m any years, and appear to have only partially im plem ented them .'^^ Increasing the dynam ic flexibility of the UFLS schem e for each island and im proving fault detection and clearing tim es are w orthw hile objectives that the Com panies should pursue, especially given the high proportion of non-synchronous generation expected on m ost islands in the near future.The Com panies should evaluate such options to enhance grid reliability, in conjunction w ith procurem ents for new renewable resources, developm ent of DR and other DER program s, and the im plem entation of the Com panies' grid m odernization strategy. ^3See Report at 7-29 to 7-30. '^W hile the com m ission encourages the Com panies to pursue these projects, the com m ission is not providing regulatory "pre-approval" of any investm ents at this tim e. Such decisions w illbe m ade in the context of future applications for cost-recovery (e.g., general rate case), as appropriate. 2014-0183 31
  35. 35. c. Com m ission Concerns w ith the Report W hile there are m any w ell-supported proposals in the Report, the com m ission has concerns w ith som e aspects of the Report, including the anticipated increases in custom er rates, proposed conventional generation projects,"^® proposed BESS and synchronous condenser projects;”^® and certain proposed transm ission projects. As stated generally above, the com m ission expects the Com panies to rigorously exam ine the prudence, tim ing, cost effectiveness, affordability, and reasonably available alternatives in individualapplications for future projects. Thus, m any of the resources identified in the Report w illbe subject to further scrutiny in future proceedings. To the extent that the Com panies choose to propose these resources and projects in the future, the Com panies m ust address these concerns prior to or as part of the review of any necessary applications or approvals by the com m ission. At this tim e, the com m ission provides the follow ing discussion of concerns to provide broad guidance w ith respect to several specific resources and projects included w ith the Report. "^^See Report at 7-18 and 7-24. ~^®See Report at 7-9. '^'^See Report at 7-22 to 7-23 {M ECO ) , 7-29 to 7-30 (HELCO ) 2014-0183
  36. 36. 1. Custom er Rate and BillIm pacts The com m ission continues to be concerned w ith the affordability of the Com panies' plans. M ost recently, the com m ission directed the Com panies to address affordability and the risks associated w ith custom er exit in O rder No. 33877.^® The rates associated w ith the Com panies' near-term action plans are projected to increase substantially (between 18% and 25% ) during the near-term action plan period, and even m ore in the subsequent five years on O ahu and the Island of H aw aii.’^® ^®O rder No. 33877 at 28-30 (citations om itted). ^®Figure 1 and Table 1 are based on "PSIP Rates and BillIm pact w ith CAGR - C onsolidated Final.xlsx," filed in support of the R eport, Chapter 5 . 2014-0183
  37. 37. Figure 1 Average R esidential R ates (R eal $/kW h) $0.45 $0.43 (+43%) $0.36 (+44%) $0.34 {+ 23%) $0.20 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 ♦ Oahu » Hawaii Island a Maui Table 1 Average R esidential Rates (R eal $/kW h) % Increase for the near-term action plans (2017-2021) % Increase for 2017-2026 HECO 17.8% 44.1% HELCO 25.1% 42.9% M ECO 18.2% 23.0% G iven the substantial increase in rates forecasted in the Report, the com m ission is concerned that the Com panies have not fully considered the affordability of their plans. The Com panies have provided only lim ited responses to the com m ission's instruction 2014-0183
  38. 38. to analyze custom er and im plem entation risks. The Com panies do not appear to have evaluated the capital investm ents, financial com m itm ents, and the resulting increasing rates, in the context of affordability to custom ers and the risk of stranded assets. Itis the Com panies' responsibility to diligently exam ine and fully consider the possibilities and risks thattheirplans pose to custom ers. The im pacts of increasing custom er rates and the prospect of uneconom ic custom er exit can be reasonably anticipated and could be forestalled or exacerbated by the Com panies' investm ent, procurem ent, and operationaldecisions. Thus, the risks associated w ith such decisions rest w ith the Com panies. 2. New Conventional G eneration Resources The O ahu Action Plan includes a proposal for HECO to install and operate a reciprocating engine at M arine Corps Base Hawaii ("M CBH"), that the Com panies envision acquiring via a w aiver from the com petitive bidding fram ework and a G .O . 7 ^^See, e.g., HECO 's Response to PUC-IR-97. Although the Com panies state that Appendix Q contains "prelim inary analysis of . . . the com parative econom ics ofa custom er rem aining connected to the utility grid versus disconnecting from the grid," the com m ission notes that the inform ation and analysis presented in Appendix Q is m inim al and incom plete. 2014-0183
  39. 39. application.® ^ The Com panies also seek to install an additional ”100 M W of firm , dispatchable, flexible generation," likely through an RFP, but possibly through a w aiver process.® ^ Sim ilarly, the M aui near-term action plan proposes new generation to be installed in 2022.®® The M aui near-term action plan does not specify the type and size of the new generation resources to be added, presum ably because the proposed installation date falls outside of the near-term action plan period of 2017 - 2021. However, in the longer-term supporting optim ization and econom ic analyses for M ECO , the Com panies specify the addition of two 9 M W internalcom bustion generation units for the year 2022, w ith an additional 20 to 40 M W of biom ass generation.®^ The com m ission's prim ary concern w ith these proposed projects is the apparent lack of thorough analysis in the Report to justify the resources. W ithout this analysis, itappears that the Com panies sim ply presum ed that these generation resources would be included in each resource plan.®^ As discussed extensively in prior com m ission orders, such an approach is not sufficient. ®®Report at 7-18. ®2Report at 7-18. ®®Report at 7-24. ®^See Report at 4-12. ®^See Ulupono SOP at 16 {citations om itted). 2014-0183
  40. 40. The Com panies should not assum e the com m ission w illwaive the com petitive bidding process for any of these proposed projects. If the Com panies choose to pursue these resources, the Com panies should incorporate the need for the com petitive bidding process in planning the tim ing of its procurem ents. Prior to initiating any such procurem ent, the Com panies m ust evaluate and dem onstrate the m erits of the selection, sizing and tim ing of these resources, including evaluation of available alternatives (including generation, storage, and distributed resources such as energy efficiency and DR). 3 . BESS and Synchronous Condensers The long-range resource plans and near-term action plans for each of the five island utility system s include new BESS and synchronous condenser resources.®"^ The proposed BESS resources are designed to provide several utility system functions, including m eeting "fast frequency response contingency,"® ® ®®See HECO 's Response to PUC-HECO -IR-88 ®~^See Report at 7-9. ®®See Report at 7-8. 2014-0183 37
  41. 41. "load-shift,"® ^ and "regulating/ram ping" requirem ents. The Com panies also state that they "w ill continue to evaluate and pursue distributed energy storage system s (DESS) to benefit DER integration."® ^ In the Report, the Com panies analyzed the system security that each island grid needs to support diligent efforts to im prove grid reliability. However, itis not clear ifthe Com panies have considered a full range of alternative options, including PSH, therm al, and electrical storage technologies, or fully explored dem and-side, as w ell as utility storage options. PSH resources, in particular, m ay help provide cost-effective long-duration storage, com plem enting distributed resources like DR. The Com panies should continue their efforts to im prove reliability and ensure system security, taking into account the m agnitude and duration of ancillary services needs, as w ell as expected changes in ancillary services needs over tim e. Further, the Com panies should propose appropriately sized resources to m eet those needs. Proposed resources should be co-optim ized to provide m ultiple ancillary services ifpossible, and the Com panies should ®®See Report, Chapter 4, alltables. ®°See Report at 7-17 to 7-18. ®^Report at 7-14. See also Report and Appendix 0. ®2Report, Appendix O . 2014-0183 38 3-17 3-20,
  42. 42. evaluate options to low er costs to custom ers, such as pairing w ith renewable energy projects to enable storage resources to benefit from available tax credits. As stated above, the com m ission expects the Com panies to consider the full range of available options, including DR resources, as w ell as various technologies and com binations of technologies. Sim ilarly, the Com panies" analysis of synchronous condenser resources does not appear to be com plete. If the Com panies decide to pursue these resources, the Com panies m ust support theirproposals w ith thorough and sound supporting analyses, prior to, and/or in the context of, procurem ent proceedings and review for necessary approvals by the com m ission. 4 . Transm ission System Projects The M aui and Hawaii Island near-term action plans both identify several transm ission system upgrade projects.^^ Regarding the M aui Island transm ission upgrades, the Com panies state that "[n]on-transm ission alternatives were considered as options to the transm ission upgrades," including DG , BESS, DR, and synchronous 93Report at 7-22 to 7-23, 7-29 2014-0183
  43. 43. condensers. In addition, the Com panies state that M ECO w ill further explore the potential of aggregated DR resources as a "non-transm ission" alternative. However, the Report does not sufficiently evaluate the possibility of non-transm ission alternatives to the transm ission upgrades identified in the M aui or Hawaii Island near-term action plans. The com m ission supports the ongoing consideration of non-transm ission alternatives forthe M aui and HawaiiIsland system s as m entioned in the Report, along w ith procedures to solicit com petitive proposals that consider a fullspectrum of transm ission and non-transm ission options. IfM ECO or HELCO decides to pursue such resources, the com m ission expects any application for transm ission system upgrades to ensure that non-transm ission alternatives and com petitively solicited alternatives are appropriately considered. s^Report at 7-22 95Report at 7-23 2014-0183
  44. 44. D. Topics R equiring Further Analysis 1. Achieving RPS G oals As requested by the com m ission, the Reportplaces greatest em phasis "on the near-term actions that allow [the Com panies] to m ake strong progress on achieving our clean energy goals. Although the prim ary purpose of the Report is to provide context for near-term decisions, the Com panies also assert that their resource analyses support a reasonable course to ultim ately attain the State's 2045 RPS requirem ent of 100% by the year 2040, and a goal of 100% renewable generation (i.e., no fossil fuel powered generation, exceeding the 100% RPS) by the year 2045.®’^ Beyond serving as aspirational goals, the long term RPS and renewable generation targets are im portant planning and design criteria. The com m ission com m ends the Com panies' com m itm ent to achieving the RPS ahead of schedule. N evertheless, the com m ission has som e concerns regarding the technical feasibility and econom ics of the long-term resource plan for each island. It appears that certain technology options, such as PSH resources, m ay have been excluded from the analysis. It also appears that certain costs ^^Report at ES-2 ^'^Report at 1-1. 2014-0183
  45. 45. m ay notbe fully incorporated into the rate and billim pact analysis and several of the underlying analyses in the Report suggest that negative reliability im pacts could result from im plem enting the long-term resource plan.®® The com m ission expects future planning cycles w illm ore fully address the capital costs, operating costs, and reliability concerns associated w ith long-term achievem ent of the RPS goals. 2. s. M olokai and Lanai Advanced 100% Renewable Energy Plans M ECO intends to solicitproposals for the procurem ent of biofuels in 2018,®® follow ed by an application w ith the com m ission for approval of a biofuel contract in 2020.^°° The Lanai near-term action plan indicates that M ECO w ill pursue a process to procure cost-effective renewable resources to achieve 100% renewable energy in 2030 or possibly sooner. As noted above, the com m ission supports M ECO 's efforts to achieve 100% renewable energy for the islands of M olokai and Lanai ahead of the tim eline established in the RPS. M ECO should ®®See e.g., Report, Appendix P at P-16 to P-18 ®®Report at 7-25. looResponse to PUC-IR-88. lo^Report at 7-27. 2014-0183
  46. 46. coordinate future procurem ent efforts w ith its upcom ing RFP for new grid scale resources. This should include an opportunity for com petitive bidding for resources that can provide com parable services as biofuel powered, utility-ow ned generation. Such resources could include com binations of energy efficiency, renewable generation, DR, and various storage options, in addition to or instead of larger-scale therm al generation. The Com panies should also pursue transparent, com petitive and com m unity-engaged efforts^°2 for the Islands of M olokai and Lanai, for procuring resources and further considering the costs and benefits of early attainm ent of 100% renewable generation, consistent w ith the needs and goals of these com m unities. 3 . System Security Requirem ents In O rder No. 33877, the com m ission noted that the Com panies had not adequately supported their system security analysis, reiterating guidance from O rder No. 33320.^°^ Specifically, the com m ission, stated: In O rder No. 33320, the com m ission identified significant concerns in the follow ing areas related to system security analysis: ^o^See Report at 7-27. io3see Order No. 33877 at 25-26 (citations omitted) 2014-0183
  47. 47. 1. The HECO Com panies have not clearly established the technical basis for the proposed requirem ents and defined them in technology-neutral term s/ 2. The HECO Com panies have not adequately dem onstrated how the proposed requirem ents balance cost w ith system reliability and risk; and 3. System security requirem ents appear to unreasonably lim it utilization of and increase costs to integrate renewables. After review ing the Report, the com m ission notes significant im provem ent in several aspects of the system security analysis. Som e of these im provem ents enabled the Com panies to identify ways to reduce costs and develop innovative solutions to m eet custom er needs. por exam ple, the Com panies have developed an analytical approach to unbundle various ancillary services from conventional generation resources. This analysis has allowed the Com panies to define specific ancillary services needs as part of the DR portfolio in Docket No. 2015-0412. In addition, the Com panies' system security analysis now appears to m ore realistically consider the characteristics and capabilities of DER. N evertheless, w ithin the lim ited tim e provided for the final Report, the Com panies have not fully perform ed the system lo^order No. 33877 at 25-26, citing O rder No. 33320, at 112 {citations and quotations om itted). lossee, e.g.. Docket Nos. 2014-0192 and 2015-0412. 2014-0183
  48. 48. security analysis required by the com m ission in O rder No. 33320, and again in O rder No. 33877. The com m ission expects that the Com panies w ill continue building upon their efforts to date by diligently refining their system security analysis. E. Expectations for Im plem entation By this D ecision and O rder, the com m ission accepts the Report, and intends to use the PSIPs "in conjunction w ith the evaluation of specific filings for approval of capital and other projects.Although the com m ission supports m any aspects of the Report, given the uncertainty about future conditions, and because planning is a continuous and ongoing activity, the com m ission encourages flexibility and anticipates variation and m odification of the plans, as tim e goes on. Future applications "w ill be evaluated on [their] own m erits pursuant to applicable statutory and regulatory standards, as w ell as [their] relationship to the final PSIPs. As such, in subsequent applications for approval or cost-recovery, the utility w illbear the burden of supporting the m erits of each proposed resource or action. The com m ission's i°®O rder No. 33877 at 2. lO’^O rder No. 33877 at 2. 2014-0183
  49. 49. acceptance of the Report should not be construed as regulatory pre-approval for any specific elem ent identified in the Report. The inclusion of a specific resource or action in the Report or near-term action plans does not m ean the com m ission w ill presum e that resource or action is necessary, properly tim ed, or prudent. Furtherm ore, the com m ission expects the Com panies to consider and propose the m ost efficient and cost-effective resource alternatives, including resources not specifically included in the Report or near-term action plans, as applicable. The com m ission expects the Com panies to procure resources that, both individually and collectively, continue to drive down custom er costs com pared to the costs estim ated in the Report. In addition, the revenue adjustm ent m echanism cap ("RAM Cap")/ that was im plem ented pending "approval" of the Com panies' PSIPs, rem ains in effect, unless otherwise ordered by the com m ission. Any proposed changes to the RAM Cap w ill be addressed in pending or future rate cases for each of the HECO Com panies. In subsequent applications, the Com panies m ust fully support the m erits of each resource or proposed action. The com m ission expects the procurem ent activities identified in the ^Q^See In re Public U til. Com m 'n, Docket No. 2013-0141, O rder No. 34514 ("O rder No. 34514"), filed on April 27, 2017. 2014-0183
  50. 50. PSIPs and near-term action plans to result in the acquisition and developm ent of the m ost cost-effective resources for custom ers, and to include consideration of resources not necessarily- identified in the PSIPs or near-term action plans. The com m ission expects the Com panies to strive to procure resources at the low est costs possible, and at costs lower than estim ated in the near-term action plans. In addition, although the com m ission supports the Com panies' am bitious plan to achieve the State's RPS ahead of schedule, it is m ost im portant for the Com panies to focus their efforts on designing and executing sound procurem ent and application processes that address the com m ission's concerns, as described in this and prior O rders. Therefore, the com m ission directs the Com panies to take the follow ing actions, at a m inim um , as a part of efforts to im plem ent the near-term action plans: (1) include a fair and transparent evaluation of alternatives, including consideration of alternatives that could result in low er cost and/or low er risk for custom ers, (2) consider all appropriate technologies, including com binations of technologies, to address system , capacity, and energy needs, rather than specifying a single resource option, (3) sufficiently justify how each resource is the best choice in conjunction w ith the near-term action plans identified in 2014-0183
  51. 51. the Report, and (4) include perform ance m easures to evaluate im plem entation of the proposed action. F. Future Planning Activities The conclusion of this docket does not m ean the end of the Com panies' planning efforts. The Com panies have repeatedly- stated that planning is a continuous process, and the com m ission agrees 109 As such, the Com panies m ust work diligently to continuously im prove their planning tools and m ethods, and tim ely revise their estim ates and forecasts as part of an ongoing, cyclicalplanning process. The com m ission also agrees that even as the Com panies' continually update their work, now is the tim e to focus on im plem enting the Com panies' near-term action plans, consistent w ith the guidance provided herein. The Com panies' future planning efforts m ust coordinate w ith and learn from other ongoing activities and pertinent proceedings and activities, including program s such as DER, DR, CBRE, and proposed grid m odernization projects. Future planning lo^See, e.g., Report at ES-7, 2-15, 2-18, and 7-28. ^^°Consum er Advocate SOP at 18. ^^^See, e.g., Com panies' SOP at 3, DBEDT SOP at and Blue Planet SOP at 2. 6, 2014-0183
  52. 52. efforts m ust also include and build upon the new set of tools used in the last round of PSIPs, particularly the use of advanced resource optim ization m odels.Finally, future planning efforts m ust continue to actively engage stakeholders, and incorporate their constructive input. The com m ission observes that in the Com panies' June 2017 D raft Report, "M odernizing H aw aii's G rid for O ur Custom ers," the Com panies propose a planning process that integrates bulk system resource planning w ith transm ission and distribution planning to assess total resource net benefits.^^^ The Com panies state that the process would engage custom ers and stakeholders at key junctures in the integrated planning effort. The com m ission is supportive of the Com panies' proposal to m ore effectively integrate resource, transm ission, and distribution planning going forw ard. Therefore, the com m ission directs the Com panies to file w ith the com m ission, outside of this docket, a report that details the Com panies' planning approach and schedule for the next round of ii^Blue Planet SOP at 3-4. ii33ee "HECO Com panies' G rid M odernization Strategy (D raft) for Stakeholder Review and Com m ent," filed on June 30, 2017, at 22-23 ("D raft G rid M odernization Strategy"), available online at https://w w w .haw aiianelectric.com /D ocum ents/about_us/investing_in_t he_future/grid_m odernization_strategy_draft.pdf. 2014-0183
  53. 53. integrated planning. The Com panies shallfile this report w ith the com m ission no later than M arch 1, 2018. VI. ORDERS THE CO M M ISSIO N O RDERS: 1. The Report is accepted, for the purposes stated and subject to the conditions set forth in this O rder. 2. By M arch 1, 2018, the Com panies shall file w ith the com m ission, outside of this docket, a report that details their planning approach and schedule for the next round of resource planning. 2014-0183
  54. 54. 3. The Com panies' M otion for C larification of O rder No. 33877, filed on August 26, 2016, is dism issed as m oot. 4. This docket is closed unless determ ined otherwise by the com m ission. DONE at H onolulu, Hawaii JUL 1 4 2017 APPRO VED AS TO FORM M ike S. W allerstein Com m ission Counsel 2014-0183.ljk 2014-0183 PUBLIC UTILITIES CO M M ISSIO N OF THE STATE OF HAW AII Randall Y. Iwase Chair Lorraine H. Akiba, Com m issioner By J^jKes P. G riffin, Dm m issioner
  55. 55. CERTIFICATE O F SERVICE The foregoing order was served on the date of filing by m ail, postage prepaid, and properly addressed to the follow ing parties: DEAN NISHINA EXECUTIVE DIRECTO R DEPARTM ENT OF COM M ERCE AND CONSUM ER AFFAIRS DIVISIO N O F CONSUM ER ADVOCACY P.O . Box 541 Honolulu, HI 96809 JO SEPH P, VIO LA VICE PRESIDENT, REG ULATO RY AFFAIRS HAW AIIAN ELECTRIC COM PANY, INC. P.O . Box 2750 H onolulu, HI 96840-0001 DO UG LAS S. CHIN ATTO RNEY G ENERAL O F HAW AII DEBO RAH DAY EM ERSON GREGG J. KINKLEY DEPUTY ATTO RNEYS G ENERAL DEPARTM ENT O F THE ATTO RNEY G ENERAL STATE O F HAW AII 425 Q ueen Street H onolulu, HI 96813 Counsel for DEPARTM ENT O F BUSINESS, ECO NO M IC DEVELO PM ENT, AND TO URISM HENRY Q CURTIS VICE PRESIDENT FOR CONSUM ER ISSUES LIFE O F THE LAND P.O . Box 37158 H onolulu, HI 96837
  56. 56. C ertificate of Service Page 2 W ARREN S. BO LLM EIER II PRESIDENT HAW AII RENEW ABLE ENERG Y ALLIANCE 46-040 Konane Place 3816 Kaneohe, HI 96744 SANDRA-ANN Y.H. W ONG LAW O FFICE O F SANDRA-ANN Y.H. W ONG 1050 Bishop Street, #514 Honolulu, HI 96813 Counsel for TAW HIRI POW ER LLC PATRICK K. W ONG CO RPORATIO N CO UNSEL M ICHAEL J. HO PPER DEPUTY CO RPO RATIO N CO UNSEL DEPARTM ENT O F THE CO RPORATIO N CO UNSEL COUNTY O F M AUI 200 S. High Street W ailuku, M aui, HI 96793 Counsel for the COUNTY O F M AUI ERIK W . KVAM PRESIDENT RENEW ABLE ENERG Y ACTIO N CO ALITIO N O F HAW AII, INC 4188-4 Keanu Street H onolulu, HI 96816 RICK REED 761 Ahua Street H onolulu, HI 96819 D irector and Policy Advisor for HAW AII SO LAR ENERG Y ASSO CIATIO N
  57. 57. C ertificate of Service Page 3 THOM AS L. TRAVIS VICE PRESIDENT PUNA PONO ALLIANCE 930 Tahoe Blvd STE 802/387 Incline Village, NV 89451 TIM LINDL KEYES, FO X & W IEDM AN LLP 436 14th street, Suite 1305 O akland, CA 94612 RO BERT HARRIS 595 M arket Street, 29^h Floor San Francisco, CA 94015 BEREN ARG ETSING ER KEYES, FO X & W IEDM AN LLP 401 H arrison O aks Boulevard, Suite 100 Cary, NC 27513 Counsel for THE ALLIANCE FO R SO LAR CHO ICE TOM KO BASHIGAW A DIRECTO R, REG ULATO RY AFFAIRS HAW AI'I GAS 745 Fort Street, Suite 1800 H onolulu, HI 96813 DEAN T. YAM AM OTO CARLITO P. CALIBO SO TYLER P. M cNISH YAM AM OTO CALIBO SO LLLC 1100 Alakea Street, Suite 3100 H onolulu, HI 96813 Counsel for AES HAW AII, INC. RICHARD W ALLSG ROVE PROGRAM DIRECTO R BLUE PLANET FO UNDATIO N 55 M erchant Street, 17th Floor H onolulu, HI 96813
  58. 58. C ertificate of Service Page 4 G ERALD A. SUM IDA TIM LUI-KW AN ARSIM A A. M ULLER CARLSM ITH BALL LLP ASB Tower, Suite 2100 1001 Bishop Street H onolulu, HI 96813 Counsel for ULUPO NO INITIATIVE LLC CO LIN A. YO ST 1003 Bishop Street Pauahi Tower, Suite 2020 H onolulu, HI 96813 Counsel for HAW AII PV CO ALITIO N SCO TT G LENN CHAIR, HAW AII CHAPTER SIERRA CLUB P.O . Box 2577 Honolulu, HI 96813 ISAAC H. M O RIW AKE KYLIE W . W AGER EARTHJUSTICE 850 Richards Street, Suite 400 H onolulu, HI 96813-4501 Counsel for SIERRA CLUB DEAN T. YAM AM OTO CARLITO P. CALIBO SO TYLER P. M cNISH YAM AM OTO CALIBO SO LLLC 1100 Alakea Street, Suite 3100 H onolulu, HI 96813 Counsel for PANIO LO POW ER CO M PANY, LLC
  59. 59. C ertificate of Service Page 5 DEAN T. YAM AM OTO CARLITO P. CALIBO SO TYLER P. M cNISH YAM AM OTO CALIBO SO LLLC 1100 Alakea Street, Suite 3100 H onolulu, HI 96813 Counsel for EURUS ENERG Y AM ERICA CO RPORATION SANDRA-ANN Y.H. W ONG LAW O FFICE O F SANDRA-ANN Y.H. W ONG 1050 Bishop Street, #514 H onolulu, HI 96813 Counsel for SUNPOW ER CO RPORATION JO SEPH K. KAM ELAM ELA CO RPORATIO N CO UNSEL ANG ELIC HALL DEPUTY CO RPORATION CO UNSEL CO UNTY O F HAW AI'I 101 Aupuni Street, Suite 325 H ilo, HI 96720 Counsel for COUNTY O F HAW AI'I FIRST W IND HO LDING S, LLC 810 Richards Street, Suite 650 H onolulu, HI 96813 CHRIS DeBO NE ACTING PRESIDENT DISTRIBUTED ENERG Y RESO URCES CO UNCIL OF HAW AII 99-1350 Koaha Place Aiea, HI 96701 LESLIE CO LE-BRO OKS EXECUTIVE DIRECTO R DISTRIBUTED ENERG Y RESO URCES CO UNCIL O F HAW AII P. 0. Box 2553 H onolulu, HI 96813

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