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Transcript of HELCO Rate Case Interim Decision
8/8/2019 HELCO Rate Case Interim Decision
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF HAWAII
In the Matter of the Application of))
HAWAII ELECTRIC LIGHT COMPANY, INC.) DOCKET NO. 2009-0164
)
For Approval of Rate Increases and )Revised Rate Schedules. )
)
INTERIM DECISION AND ORDER
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8/8/2019 HELCO Rate Case Interim Decision
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF HAWAII
In the Matter of the Application of))
HAWAII ELECTRIC LIGHT COMPANY, INC.) Docket No. 2009-0164
)
For Approval of Rate Increases and )
Revised Rate Schedules )
INTERIM DECISION AND ORDER
By this Interim Decision and Order, the commission
denies the request to increase rates for certain expenses, but
approves the requested increase in rates for other expenses for
HAWAII ELECTRIC LIGHT COMPANY, INC. ("HELCO" or "Company")^ on an
interim basis, as reflected in the Parties' Joint Statement of
Probable Entitlement, filed on October 5, 2010, subject to the
adjustments set forth herein. As detailed below, for interim
purposes, the commission denies HELCO's request to increase
rates for increases in employee salaries and wages, and
determines that HELCO must make certain adjustments to the
'The Parties are HELCO and the DEPARTMENT OF COMMERCE ANDCONSUMER AFFAIRS, DIVISION OF CONSUMER ADVOCACY("Consumer Advocate"), an ex officio party to this proceeding,pursuant to Hawaii Revised Statutes ("HRS") § 269-51 and HawaiiAdministrative Rules ("HAR") § 6-61-62(a).
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wages, salaries, and benefits of HELCO employees in light of the
economic challenges that HELCO's customers and the State of
Hawaii faces today. HELCO is a monopoly and is not subject to
significant competitive pressures that would limit how much it
could charge its customers and force it to control its costs.
Therefore, the commission's regulation must serve as the check
on the utility's spending and costs which are ultimately borne
by ratepayers. HELCO's request to have its ratepayers fund
increases in wages and salaries and a high proportion of
employee benefit costs in the current economic environment is
inappropriate and unreasonable. Therefore, the commission
instructs HELCO to make these adjustments and file revised
schedules with written explanations as to the amounts removed
and any other downward adjustments made to the schedules due to
the commission's orders herein. The commission also instructs
HELCO to promptly remove from its rate schedule, with no grace
period, Schedule E and all related language found elsewhere,
which provides an electricity rate discount to HELCO's employees
(full-time and retirees).
Moreover, by this Interim Decision and Order, the
commission takes no action on HELCO's request for: (1) approval
of a purchased power adjustment clause ("PPAC");
(2) implementation of a revenue balancing account ("RBA") and a
revenue adjustment mechanism ("RAM"); and (3) implementation of
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a revised energy cost adjustment clause ("ECAC") mechanism.
Given that the revised ECAC mechanism is not being implemented,
the commission instructs HELCO to make the necessary adjustments
to all appropriate accounts, and file revised schedules with
written explanations as to the adjustments made.
The Consumer Advocate may file comments on HELCO's revised
schedules by the deadline set forth in the Orders section
herein.
The final rate of return on common equity to be
adopted in this rate will require further analysis. For
purposes of this Interim Decision and Order, the commission
finds that a 10.50% rate of return on common equity, for an
overall rate of return of 8.593%, is reasonable.
I.
Background
A.
Other Relevant Commission Dockets
1.
Docket No. 2008-0083
On July 2, 2009, the commission, in In re Hawaiian
Elec. Co., Inc., Docket No. 2008-0083 ("Docket No. 2008-0083"),
approved an interim increase in revenues of $61,098,000 for
HAWAIIAN ELECTRIC COMPANY, INC. ("HECO"), or 4.71% over revenues
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at current effective rates, based on the 2009 calendar Test
Year.^ Notably, however, the commission, in its Interim Decision
and Order, stated that it is "concerned with the justness and
reasonableness of electricity discounts for HECO employees and
former employees during these times of economic crisis [.]"^
Accordingly, the commission, for purposes of interim rate
relief, instructed HECO to remove Schedule E from its rate
schedules.
Similarly, in its Interim Decision and Order in Docket
No. 2008-0083, the commission found that the "record
insufficiently addresses the accuracy, reasonableness, and
fairness of the proposed wage increases for merit employees
given current economic conditions," and, for purposes of interim
rate relief, disallowed wage and salary increases for HECO's
merit employees.^
^Interim Decision and Order, filed on July 2, 2009, inDocket' No. 2 008-0083; and Order Approving HECO's RevisedSchedules, filed on August 3, 2009, in Docket No. 2008-0083.
^Interim Decision and Order, filed on July 2, 2009, inDocket NO. 2008-0083, at 11.
^Id.
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2.
Docket No. 2009-0163
On July 27, 2010, the commission, in Maui Elec. Co. ,
Ltd., Docket No. 2009-0163 ("Docket No. 2009-0163"), approved an
interim increase in revenues of $10,296,200 for MAUI ELECTRIC
COMPANY, INC. ("MECO") , or approximately 3.3% over revenues at
current effective rates, based on the 2010 calendar Test Year.^
AS in Docket No. 2008-0083, however, the commission, for
purposes of interim rate relief, instructed MECO to immediately
remove Schedule E from its rate schedules.^ For purposes of
interim rate relief, MECO and the Consumer Advocate agreed to
eliminate the 2010 merit wage increases.
^Interim Decision and Order, filed on July 27, 2 010, inDocket No. 2009-0163.
^In their Stipulated Settlement Letter filed therein, forpurposes of interim rate relief, MECO and the Consumer Advocateagreed that "only the impacts to revenues and [net periodicbenefit] cost as proposed by the Consumer Advocate associatedwith the employee discount will be eliminated from the test yearfor purposes of the Interim Decision." See Stipulated SettlementLetter, filed on June 21, 2 010, in Docket No. 2009-0163,Exhibit 1, at 53.
In response to PUC-IR-103, which requested clarification asto Schedule E, MECO stated that the Parties did not stipulate toeither continuing or eliminating Rate Schedule E. See MECO'sresponse to PUC-IR-103, filed July 8, 2010. MECO then reiteratedthat if the employee discount is to be discontinued, it should beterminated after the applicable collective bargaining agreementshave expired on October 31, 2010.
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Docket No. 2009-0321
On November 9, 2009, HELCO, in In re Haw. Elec. Light
Co. , Inc., Docket No. 2009-0321 ("Docket No. 2009-0321"), filed
an application seeking the commission's approval of
proposedchanges to HELCO's depreciation rates, contributions-
in-aid-of-construction ("CIAC") amortization period, and vintage
amortization accounting (based on its 2 008 Book Depreciation
Study) ." On August 17, 2010, the Stipulated Procedural Order was
filed.^ On October 5, 2010, HELCO and the Consumer Advocate
filed a joint motion for the temporary approval of its proposed
changes to its depreciation rates, CIAC amortization period, and
vintage amortization accounting.^ On October 13, 2010, the
commission issued an order granting said motion and approving,
on a temporary basis, the proposed depreciation rates, CIAC
amortization period, and vintage amortization accounting in
Docket No. 2009-0321, effective from the effective date of the
interim rates approved herein."^^
^The parties in Docket No. 2009-0321 are HELCO and theConsumer Advocate.
^Stipulated Procedural Order, filed on August 17, 2010, inDocket No. 2009-0321.
^Joint Motion for Approval of Stipulation of the Division ofConsumer Advocacy and Hawaii Electric Light Company, Inc. andStipulation, filed on October 5, 2010, in Docket No. 2009-0321.
"order Approving the Joint Motion for Approval ofStipulation of the Division of Consumer Advocacy and Hawaii
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B.
HELCO'S Application
1.
HELCO's Background
HELCO, whose executive office is located at
1200 Kilauea Avenue, Hilo, Hawaii, is a corporation duly
organized under the laws of the Republic of Hawaii on or about
December 5, 1894, and now exists under and by virtue of the laws
of the State of Hawaii.
HELCO is an operating public utility engaged in the
production, purchase, transmission, distribution, and sale of
electricity on the island of Hawaii.
2.
Relief Requested
On December 9, 2009, HELCO filed its Application^^
seeking the commission's approval of an increase in its revenues
of $20,934,500 (approximately 6.0%) over its revenues at current
Electric Light Company, Inc. and Stipulation, filed on
October 13, 2010, in Docket No. 2009-0321.
^^Application; Verification; Certificate of Service;Direct Testimonies and Exhibits; and Workpapers in Support ofDirect Testimonies, filed on December 9, 2009 (collectively,"Application"). The filing date of HELCO's complete Applicationis December 9, 2009. See Order Regarding Completed Applicationand Other Initial Matters, filed on February 2, 2010.
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effective rates."'" The requested increase was based on an
estimated total revenue requirement of $370,015,600 for the
normalized 2010 test year ("Test Year"), based on July 2009 fuel
oil prices and an 8.73% rate of return on HELCO's average
rate base, including a return on common equity of 10.75%, which
assumes the implementation of a revenue decoupling mechanism and
certain surcharges,
a.
Depreciation Rates
Requested revenues in the Application are based on
depreciation rates that HELCO proposed in the application it
filed in Docket No. 2009-0321 to change its depreciation rates.
If the commission issues a decision and order in that proceeding
prior to the conclusion of this rate case, HELCO proposes to use
the newly approved depreciation rates to calculate the Test Year
revenue requirement. HELCO states that, as it proposed in
^^"HELCO's current effective rates are the result of theCommission's Decision and Order No. 18365 issued February 8, 2001in Docket No. 99-0207, which utilized a 2000 test year, andInterim Decision and Order No. 23342 issued April 4, 2007 inDocket No. 05-0315, which utilized a 2006 test year."
Application at 16. A Final Decision and Order in DocketNo. 05-0315, which approved the interim increase granted in theInterim Decision and Order No. 23342, was filed onOctober 28, 2010. See Decision and Order, filed onOctober 28, 2010, in Docket No. 05-0315. However, to date, HELCOhas not filed its revised tariff sheets and rate schedules, whichreflect the increase in rates granted by said Final Decision andOrder.
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Docket No. 2009-0321, it will begin using the new depreciation
rates to calculate its depreciation expense for financial
reporting purposes as of the effective date of the electrical
service rates that recover the depreciation expense based on the
new depreciation rates.
If a decision in Docket No. 2009-0321 has not been
issued by the time that an interim decision is to be issued in
this proceeding, HELCO requests that an interim increase be
based on the existing depreciation rates, and that upon issuance
of the decision and order in Docket No. 2009-0321, the
commission approve a "Depreciation Step Down" that would
effectively implement the difference between HELCO's Test Year
revenue increase based on its existing depreciation rates and
the revenue increase based on the depreciation rates approved in
Docket No. 2009-0321. On the effective date of the Depreciation
Step Down, HELCO proposes to begin recording depreciation
expense according to the decision and order in Docket
No. 2009-0321 to match the recording and recovery of the new
depreciation rates.
b.
Implementation of Rate Increases
HELCO requests that the commission implement its
proposed rate changes in the following steps: (1) an interim
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increase equal to the increase in rates to which the commission
determines HELCO is "probably entitled" based on the evidentiary
record before it, in accordance with HRS § 269-16 (d), and
structured as surcharges for the various classes based on a
percentage of the customer's base charges (i.e., exclusive of
Energy Cos t Adj us tment charges and other surcharges); (2) a
Depreciation Step Down, as addressed above; and (3) a final
increase when the commission issues its Final Decision and Order
to provide for the amount of the total requested revenue
increase not included in the interim increase.
c.
Requested Tariff Changes
As a part of its Application, HELCO also proposes to:
(1) establish a PPAC to recover non-energy purchased power
agreement costs to be effective upon issuance of the Final
Decision and Order in this rate case, as proposed in Section 30
of the Energy Agreement dated October 20, 2 008, between the
State of Hawaii^" and the HECO Companies;^^ and (2) establish an
RBA and RAM, to be effective at such time as interim rates
The Governor, Director of Business, Economic Development,and Tourism, and the Consumer Advocate, signed theEnergy Agreement on behalf of the State of Hawaii.
^^"HECO Companies" collectively refers ,, to HECO and itsaffiliates, MECO and HELCO.
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become effective pursuant to the Interim Decision and Order in
this rate case, as proposed in , Docket No. 2008-0274, the
commission's decoupling investigative proceeding. ^
In addition, HELCO proposes certain revisions to its
tariff rules, which include increasing: (1) the Service
Establishment Charge from $15.00 to $20.00; (2) the same day
service connection charge from $25.00 to $45.00; (3) the
Returned Check Charge from $15.00 to $16.00, as well as
re-naming this provision the Returned Payment Charge; and
(4) the Field Collection Charge from $15.00 to $20.00 per field
collection call.
3.
Reasons for Rate Relief
HELCO asserts that rate relief is required due to:
(1) the decline in its electric sales; (2) its additional
investment in plant equipment, increasing costs for labor,
materials, contract services, and other operating expenses; and
(3) the need to maintain its financial integrity.
^ If the commission approves an RBA in this proceeding, HELCOfurther proposes that certain changes to its ECAC, as proposed inDocket No. 2008-0274, be implemented upon issuance of interimrelief in this proceeding. See Application at 10-11.
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c.
Public Hearings
Public hearings on HELCO's Application were held by
the commission on February 22 (Kona, Hawaii) and
February 25, 2010 (Hilo, Hawaii), pursuant to HRS §§ 269-16 and
269-12. Representatives from HELCO, the Consumer Advocate, and
the public appeared and testified at each public hearing. In
general, the members of the public who testified expressed their
concerns with certain capital improvement projects and the
rate-making process itself.
D.
Settlement Agreement
On July 29, 2010, the Consumer Advocate filed its
direct testimonies, exhibits, and workpapers.
On September 16, 2010, the Parties jointly filed their
stipulated settlement letter ("Settlement Agreement"), which
effectively represents a global settlement of all the issues in
this proceeding.^^ HELCO filed the Settlement Agreement in lieu
of its rebuttal testimonies.
^^Stipulated Settlement Letter and Exhibit 1, filed onSeptember 16, 2010.
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E.
Joint Statement of Probable Entitlement
On October 5, 2010, the Parties filed their Joint
Statement of Probable Entitlement in support of interim rate
relief. "
The Parties, as part of their Joint Statement of
Probable Enti 11ement, request that the commission:
1, Approve an interim rate increase in theamount of $18,346,000 (with the resetting ofthe ECAC target heat rates) over revenues at
current effective rates subject to temporaryapproval of depreciation rates proposed inDocket No. 2009-0321;
2, Approve the rate design for the interim rateincrease as described in the Joint Statementof Probable Entitlement;
3, Approve the following to be effective at thetime of interim relief:a. The RBA, RAM and ECAC tariffs that were
submitted by HELCO in this docket;
, b. The ECAC target heat rates proposed inthis docket; and
c. The implementation of the sales heatrate deadbands.
Joint Statement of Probable Entitlement at 6-7.
'^Joint Statement of Probable Entitlement; Attachments 1-5,filed on October 5, 2010 (collectively, "Joint Statement ofProbable Entitlement").
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II.
Discussion
A.
Standard for Interim Relief
HRS § 269-16(d) requires that the commission make
every effort to complete its deliberations with respect to a
public utility's request for a rate increase "as expeditiously
as possible and before nine months from the date the public
utility filed its completed application." The statute further
provides that, if such deliberations are not concluded within
the nine-month period, the commission shall render an interim
decision within one month after the expiration of the nine-month
period. The commission may postpone its interim rate decision
an additional thirty days if the commission considers the
evidentiary hearing incomplete. The interim decision may allow
an increase in rates if the commission believes the public
utility is "probably entitled" to such interim rate relief. ^
^Vith respect to interim rate relief, the commission haspreviously noted:
[0]ur decision in this docket should be consistent withprecedent and that computational error committed by theparties should be accounted for. However, in decidinginterim rate relief, the commission's scrutiny of boththe record and the discourse during the evidentiaryhearings is a search for showing of probableentitlement. This search is necessarily quick, unlikethe careful deliberation the commission consistentlyaccords issues in rendering final decisions.In deciding interim rate relief, the commission mustoften postpone determinations of reasonableness with
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Moreover, HRS § 269-16(d) further provides the
following:
In the event interim rates are made effective,the commission shall require by order the public
utility to return, in the form of an adjustmentto rates, fares, or charges to be billed in thefuture, any amounts with interest, at a rateequal to the rate of return on the publicutility's rate base found to be reasonable by thecommission, received under the interim rates thatare in excess of the rates, fares, or charges,finally determined to be just and reasonable bythe commission. Interest on any excess shallcommence as of the date that any rate, fare, orcharge goes into effect that results in the
excess and shall continue to accrue on thebalance of the excess until returned.
HRS § 269-16(d).
The commission determined the filing date of the
completed Application as December 9, 2 009. By Order filed on
October 1, 2 010, the commission, inter alia: (1) approved
certain amendments to this docket's regulatory schedule
requested by HELCO; and (2) postponed its interim rate decision
for thirty days to November 9, 2 010, pursuant to HRS
§ 269-16(d).^^ Therefore, the commission timely issues this
respect to certain unresolved matters. Otherwise, thespeed with which [the public utility] is given interimrate relief would be affected.
In re Hawaiian Elec. Co., Inc., Docket No. 04-0113, InterimDecision and Order No. 22 050, filed on September 27, 2 005, at5-6 n.7 (quoting In re Hawaiian Elec. Co., Inc.. Docket No. 6998,Interim Decision and Order No. 11559, filed on March 31, 1992,at 7) .
'^Order Approving the Parties' Request to Amend theRegulatory Schedule, filed on October 1, 2010,
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Interim Decision and Order, which addresses HELCO's request for
interim rate relief.
B.
Interim Rate Relief
For purposes of interim rate relief, the commission
accepts the agreements memorialized by the Parties in their
Joint Statement of Probable Entitlement, subject to, however,
the following adjustments and findings. Revised schedules shall
be filed, as applicable.
1.
Wages, Salaries, and Related Expenses
In its direct testimony, the Consumer Advocate states
that, "[a]s companies doing business in competitive environments
should be expected to seek out substantial cost reductions in
the face of significant reductions in sales, it is similarly
reasonable to expect regulated utilities to undertake and
sustain efforts to maintain or reduce cost levels when faced
with declining sales."^° The Consumer Advocate also notes the
following:
In addition, it has been frequently observed thatregulation is intended to serve as a surrogate forcompetition. Just as competition may driveunregulated firms to lower costs and become more
'"See CA-T-1 at 62.
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efficient to support price reductions, regulators cansimilarly be expected to put reasonable pressure onutility companies to achieve additional economies andimplement cost containment efforts to constrain
21
prices.
In these difficult economic times, other regulatory
commissions have expressed an expectation that utility
management should reduce costs. The New York Public Service
Commission held the following in an order issued in April 2009:
In these extraordinary times, we recognize theneed for utilities to implement austerity
programs to constrain costs and tighten beltsto limit discretionary spending. We willrequire a meaningful further downwardadjustment to the Company's revenue of$60 million, half of which will be subject tofurther review and potential deferred based ona review of the Company's ability and bestefforts to implement the required measureseffectively.^^
In March 2010, the Florida Public Service
Commission issued an order that stated the following:
Based upon our discussion and conclusions below,we find that [Florida Power & Light Company's("FPL")] request (salaries and employee benefits)is unreasonable and inappropriate, and thusreduce FPL's request by $49,510,13 6.Contrary to the indications of a slowing economy,FPL proposed at a minimum, to maintain or in somecases increase its O&M expenses over thatprovided in 2008. This requested increase in
compensation is despite FPL's own testimony
"id. at 65.
^'id. at 68 (citing order issued on April 4, 2009 by theNew York Public Service Commission in Case 08-E-0539).
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reflecting reductions in sales and higher baddebt attributable to the bad economy. While mostcompetitive business would seek avenues ofdecreasing costs in response to economic
conditions, FPL is actually requesting anincrease in its compensation costs. ^
It is undisputed that the State of Hawaii in general
and the County of Hawaii in particular continue to face
difficult economic times.^^ During this challenging economy, the
commission "recognize[s] the need for utilities to implement
austerity programs to constrain costs and tighten belts to limit
discretionary spending."^^
As a result of its concerns over the economy and the
costs that were being passed on to ratepayers, by its Interim
Order and Decision filed on July 2, 2 009 in Docket
No. 2008-0083, the commission: (1) instructed HECO to remove
Schedule E from its rate schedules, which provided an
electricity rate discount to HECO's employees (full-time and
retirees); and (2) disallowed wage and salary increases for
"See In re: Petition for Increase in Rates by FloridaPower & Light Company, Docket No. 080677-EI, and In re: 2009Depreciation and Dismantlement Study by Florida Power & LightCompany, Docket No. 090130-EI (Consolidated); OrderNo. PSC-lO-0153-FOF-EI, filed on March 17, 2010, at 147-49.
^^Jay Ignacio, President of HELCO, acknowledged that theglobal recession has directly impacted Hawaii County. In histestimony, he stated that "the need for this rate case comesduring an economically difficult time for the State and thecommunities of the Big Island, of which HELCO and its employeesare a part." See HELCO T-1 at 1.
"See CA-T-1 at 68.
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HECO's merit employees. Similarly, by its Interim Order and
Decision filed on July 27, 2 010 in Docket No. 2 009-0163, the
commission instructed MECO to remove Schedule E from its rate
schedules, which provided an electricity rate discount to MECO's
employees (full-time and retirees).
Here, according to the testimony submitted by HELCO,
the Test Year wages and salaries for the bargaining unit
(non-merit) positions include non-compounded wage increases of
4.0% on January 1, 2009, and 4.5% on January 1, 2010, with both
increases applied to bargaining unit wage rates as of
October 31, 2007.^^ The Test Year wages and salaries for the
merit employees include compounded wage increases of: (1) 0.3%
effective September 1, 2009, and a 0.20% effective
December 1, 2009, with these percentage increases applied to
merit wage rates as of April 30, 2009; (2) 4.0% effective
May 1, 2010; and (3) 0.30% effective September 1, 2010, and
0.20% effective December 1, 2010, with these percentage
increases applied to merit wage rates as of April 30, 2009.^^
Based on the current record, HELCO has not established
that it is probably entitled to recover for such increases in
wages and salaries. Among other things, the commission is not
persuaded that HELCO has sufficiently considered and implemented
''See HELCO T-1 at 28; HELCO-1003 .
See id.
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aggressive cost-cutting measures to help reduce its rate
increase request.
The commission, therefore, denies HELCO's request to
recover costs resulting from the increases in wages and salaries
described above. Accordingly, the commission finds that, for
interim purposes, the wages, salaries, and all related accounts
for all HELCO employees should be adjusted to reflect the 2008
recorded wage levels for each employee in the Test Year. This
downward adjustment of approximately 7.87% for non-merit
employees and 4.81% for merit employees reasonably reflects
Hawaii's current economic condition. The commission instructs
HELCO to make the foregoing wage and salary adjustments to all
appropriate accounts, and file revised schedules with written
explanations as to the amounts removed and any other downward
adjustments made to the schedules due to the foregoing wage and
salary adjustments.
For purposes of final rate relief in this docket,
HELCO may file supplemental testimony regarding the
justification for HELCO's Test Year wages and salaries. Any
further testimony filed to justify HELCO's requested Test Year
wages and salaries should, at a minimum, include the following:
1. Detailed justification as to whyHELCO's requested salary and wageincreases of 7.87% for the non-meritemployees and 4.81% for the meritemployees are reasonable.
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2. Descriptions of all significant andpermanent cost reductions HELCOconsidered and implemented to helpreduce its present rate increaserequest. The descriptions of
cost-cutting measures shoulddemonstrate the detail of savings andidentify the saving amount of eachmeasure.
Group Medical, Dental, Vision, and Life Insurance
HELCO currently provides group medical, dental,
vision, and life insurance benefits to its employees through a
flexible benefits plan called the "FlexPlan."^^ The FlexPlan was
adopted in 1989 to provide employees with the flexibility of
choosing benefit levels that meet individual needs while helping
HELCO control future health plan costs.^^ Costs are controlled
by offering employees an incentive to waive health plan coverage
in return for flex credits that can be used to purchase other
benefits.^°
Based on the record, it appears tliat HELCO's Test Year
projection for medical, dental, vision and life insurance costs
will result in HELCO employees paying approximately 9.33% of the
''see HELCO T-11 at 28.
"see id. at 29.
See id.
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premiums and HELCO ratepayers paying for the remaining 90.67%.
The following is a breakdown of the cost allocation between the
employees and ratepayers:
Amount Percentage
Total Cost of Medical:^^ $2,856,300
Total Cost of Dental:^^ 331,596
Total Cost of Vision:^^ 54,072
Total Medical Premiums: $3,241,968
Total Cost of Life Insurance: 209,500
Total Med. & Life Ins. Premiums:^^ $3,451,468 100.00%
Total Amount Paid by Employees:^^ 321,941 9.33%
Total Cost Paid by Ratepayers: 3,129,527 90.67%
As discussed above, during these difficult economic
times, the commission expects public utilities to be especially
fiscally responsible. In In re Wai'ola 0 Moloka'i, inc.. Docket
No. 2009-0049, the Consumer Advocate proposed, and the utility
agreed as part of the settlement agreement, to reduce the
recovery of medical and dental benefits from 100% to 50%."^^
Likewise, in the settlement reached in In re Moloka'i Public
"See HELCO-1107.
''See HELCO-1108.
"See HELCO-1109.
''See HELCO-1111.
''See HELCO-1106 at 1.
'^See Wai'ola 0 Moloka'i, Inc.'s Opening Brief; Exhibits A,B, C, and D, filed on July 19, 2010, in Docket No. 2009-0049, at
Exhibit A, p. 6
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utilities, Inc., Docket No. 2009-0048, the utility agreed to
reduce the recovery of medical and dental benefits from 100% to
50%.^^ In these two rate cases, the parties recognized that
shared sacrifices must be made in light of Hawaii's current
economic environment.
Such shared sacrifice by the utility is warranted
here. Therefore, the commission finds that, for interim
purposes, HELCO's recovery of group medical, dental, vision, and
life insurance premiums should be adjusted to no more than 50%
of the total premium cost. Because of the existing labor
contract between HELCO and Local 1260 of the International
Brotherhood of Electrical Workers AFL-CIO that is in effect
through December 31, 2011,^^ this adjustment shall be made in two
phases: (1) this adjustment to benefits will apply to all merit
and executive employees of HELCO at the time the interim rates
approved herein take effect; (2) this adjustment will be
effective as to the non-merit employees of HELCO as of
January 1, 2012, unless the commission rules otherwise in a
Final Decision and Order entered herein before that date.
The commission instructs HELCO to compute the
adjustment to recover no more than 50% of: (1) its group medical
'" See Letter dated and filed May 6, 2010, from Michael H. Lauto the commission, in Docket No. 2009-0048, at 4.
''see HELCO-WP-1104 at 22.
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plan costs of $2,856,300; (2) its group dental plan costs of
$331,600; (3) its group vision plan costs of $54,100; and
(4) its group life insurance plan costs of $209,500 for its
merit and executive employees. ^ The commission also instructs
HELCO to adjust any other accounts that may be impacted by this
adjustment and file revised schedules with written explanations
as to the amounts removed and any other downward adjustments
made to the schedules due to the foregoing benefits adjustments.
For purposes of final rate relief in this docket,
HELCO may file supplemental testimony regarding the
justification for HELCO's Test Year benefits coverage. Any such
testimony filed should, at a minimum, include the following:
1. Detailed explanations as to how muchFlexPlan has reduced premium rates,with a quantification of cost savings,if any. Also, HELCO should explain how
FlexPlan can be effective when only6.5 employees, or 1.7% of allemployees, elected to waive thisbenefit.^^
2. Detailed explanation as to whether itis reasonable for ratepayers to pay forapproximately ' $671.31 of a typicalHMSA "*" PPP medical family coverage cost
'^HELCO may offset its premium payments with the flexcredits. However, in no event shall the ratepayers beresponsible for more than 50% of the health and insurancebenefits discussed herein.
'"see HELCO-1107.
'^"HMSA" refers to the Hawaii Medical Service Association, alicensed provider of health care coverage in Hawaii.
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of $731.31 per month through theirelectric rates.^^
3. With the overall PiMSA rates for 2010increasing by 16.8%,^-^ HELCO shouldprovide detailed explanations as to the
following: (a) whether it is reasonableto pass the entire increase on toHELCO's ratepayers; (b) what HELCO hasdone, i f anything, to prevent pass ingon this increase to ratepayers;(c) whether it is reasonable for HELCOemployees to" cover some or all of thisincrease; and (d) what HELCO has doneto control or even reduce employeebenefits costs to ratepayers.
3.
Pension and Pension Benefits
Although the commission will not make any adjustments
to the pension and pension benefits by this Interim Decision and
Order, the commission is concerned about the increasing costs of
such benefits. Therefore, the commission instructs HELCO to
file supplemental testimony that addresses the following
questions:
1. Has HELCO explored ways to reduceAccount 92 6.00 (employee pension andbenefits expense)?
2. Explain why retirement income earned ata rate of 2.04%, not to exceed 67% (formerit employees), and 1.83%, not to 60%(for non-merit/bargaining unit
"See HELCO-1107
"See HELCO T-11 at 35.
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employees) for each year of service isreasonable.
a. Would retirement income computedat 1.25% times the total years ofcredited service be reasonable?
Please explain in detail.
b. Beginning January 1, 2 011, whatwould the pension expense be ifretirement income is computed at1.25% times the total years ofcredited service for both meritand non-merit/bargaining uni temployees.
Has HELCO considered terminating its
non-contributory defined benefitretirement plan and replacing it with a401(k) retirement or similar plan whereHELCO matches employee contributions upto a predetermined amount? (Thisquestion assumes that service creditsearned by current employees will beretained up to plan termination date.)
a. If HELCO were to implement a401(k) retirement or similar plan
where HELCO matches employeecontributions up to apredetermined amount, providedetails of this plan and itsprojected cost to HELCO. (Thisquestion assumes that thisretirement plan will replace thecurrent non-contributory definedbenefit plan. Please includeworkpapers and schedules thatclearly explain HELCO'scomputations and assumptions.)
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Electricity Rate Discount
In the Settlement Agreement, the Parties "agree that
the employee discount should be removed from the determination
of the revenue requirement."'' When MECO and the
Consumer Advocate reached the same agreement with respect to the
employee discount in Docket No. 2009-0163, MECO subsequently
clarified that it did not stipulate to either continuing or
eliminating Schedule E, and that if the commission elects to
discontinue the employee discount, the commission should do so
after the applicable collective bargaining agreements have
expired on October 31, 2010."
Consistent with its ruling in Docket Nos. 2008-0083 and
2009-0163, the commission likewise instructs HELCO to promptly
remove from its rate schedule, with no grace period. Schedule E
and all related language found elsewhere.
D.
Depreciation Rates
In Docket No. 2009-0321, the commission applied the
reasonableness and public interest standard in temporarily
''See Settlement Agreement, Exhibit 1, at 22
' See supra footnote 4.
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approving HELCO's proposed, lower depreciation rates.^^ Thus,
for purposes of interim rate relief, the commission finds it
reasonable to conclude that, at a minimum, HELCO is probably
entitled to the level of accumulated depreciation, depreciation
expense, and CIAC amortization temporarily approved by the
commission in Docket No. 2009-0321.'^ At the same time, as
emphasized by the commission in its temporary approval Order, a
ruling on the merits of HELCO's lower depreciation rates and
related matters is deferred until the commission's final
decision in Docket No. 2009-0321."
E.
Purchase Power Adjustment Clause
For purposes of reaching a global settlement, HELCO
and the Consumer Advocate agreed to approve the PPAC with
implementation on a cents per kilowatt-hour ("kWh") basis with
the commission's approval of final rates in this rate case.^^ By
this Interim Decision and Order, the commission takes no action
'^Joint Motion for Approval of Stipulation of the Division ofConsumer Advocacy and Hawaii Electric Light Company, Inc. andStipulation, filed on October 5, 2010, in Docket No. 2009-0321.
^^See Order Approving the Joint Motion for Approval ofStipulation of the Division of Consumer Advocacy and HawaiiElectric Light Company, Inc. and Stipulation, filed onOctober 13, 2010, in Docket No. 2009-0321.
^'id.
' ^ S e t t l e m e n t A g r e e m e n t , E x h i b i t 1 , a t 9 9 .
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with respect to the PPAC and defers ruling on this matter until
the Final Decision and Order is entered herein.
F.
Decoupling
The commission's Final Decision and Order in Docket
No. 2008-0274 was entered on August 31, 2010.^° In said order,
the commission held that "[t]he HECO Companies shall implement
decoupling, and commence tracking target revenues and recorded
adjusted revenues when rates that reflect a reduced ROR due to
decoupling are approved by the commission in either an interim
or Final Decision and Order in the HECO Companies' pending rate
cases. "" After careful consideration of the record herein and
the other pending dockets discussed above, the commission defers
the implementation of decoupling for HELCO until the Final
Decision and Order is entered herein.\
G.
Revised ECAC
As noted above, HELCO reques ted that, i f the
commission approves an RBA in this proceeding, the revised ECAC
^°Final Decision and Order and Dissenting Opinion ofLeslie H. Kondo, Commissioner, filed on August 31, 2 010, inDocket No. 2008-0274.
''id. at 129.
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mechanism, as proposed in Docket No. 2008-0274, be implemented
upon issuance of interim relief in this proceeding. Because an
RBA is not being implemented by this Interim Decision and Order,
HELCO's request for implementation of the revised ECAC mechanism
is not ripe for adjudication. Thus, the commission instructs
HELCO to make the necessary adjustments to all appropriate
accounts, and file revised schedules with written explanations
as to the adjustments made.
H.
Rate of Return on Common Equity
In its direct testimony, HELCO proposes a rate of
return on common equity ("ROE") of 10.75%, which was adjusted
downward for the implementation of a revenue decoupling
mechanism ("RDM"), including an RBA and RAM, and the Renewable
Energy Infrastructure Program ("REIP") Surcharge proposed in
Docket No. 2007-0416 and the PPAC proposed in this proceeding. ^
HELCO states that if the RDM, REIP Surcharge, and PPAC are
approved by the commission, the "Company's risk is reduced, and
the cost of common equity capital declines by some 25 basis
points. " ^ If the RDM, REIP Surcharge, and PPAC are not
"see Joint Statement of Probable Entitlement at 4
"Id.
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implemented by this Interim Order and Decision, HELCO proposes
an ROE of 11.00% for ratemaking purposes. ^
The Consumer Advocate proposes an ROE in the range of
9.50% to 10.50%.^^ According to the testimony submitted by the
Consumer Advocate, the implementation of decoupling, REIP, and
PPAC mechanisms "would have the impact of lowering HELCO's cost
of common equity to the low end of its cost of equity range,
which amounts to a 50 basis point reduction. "^^ The
Consumer Advocate does not explicitly state what its recommended
ROE would be without the adjustment for decoupling. However, if
the Consumer Advocate believes that the ROE should be at
''the low end of its cost of equity range" (i.e., 9.50%) with the
implementation of decoupling, and that the implementation of
decoupling "amounts to a 50 basis point reduction," then the
commission can reasonably conclude that the Consumer Advocate
would propose an ROE of 10.0% without the downward adjustment
for decoupling.
For purposes of reaching a global settlement, the
parties agreed that the interim increase should be based on a
10.125% ROE, which assumes the implementation of decoupling,
''see id^ (citing HELCO T-17, at 4, 53; HELCO T-18, at 68;and HELCO-1801).
^^See id. (citing CA-T-4, at 4; CA-401; and response ,toHELCO/CA'IR-401).
''See id^ (citing CA-T-4, at 59) .
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REIP Surcharge, and PPAC. ^ However, the Parties apparently did
not reach an agreement as to the appropriate ROE where
decoupling is not implemented.
As noted above, an RDM and PPAC are not being
implemented by this interim Decision and Order. The final ROE
to be adopted in this rate will require further analysis. For
purposes of this Interim Decision and Order, the commission
finds that an ROE of 10.5%, for an overall rate of return of
8.593%, is reasonable. An ROE of 10.5% is the midpoint between
the respective unadjusted ROEs that HELCO (11.00%) and the
Consumer Advocate (10.00%) have proposed in this proceeding.
Using the midpoint between the Parties' unadjusted ROE
recommendations is appropriate for purposes of this Interim
Decision and Order because: (1) both HELCO and the
Consumer Advocate's unadjusted ROE recommendations are based on
purported expert testimonies; and (2) upon a review for interim
purposes, both expert recommendations appear equally credible.
Approving an unadjusted ROE of 10.50% for interim purposes would
also be consistent with the 10.50% ROEs recently approved for
interim purposes by the commission in In re Maui Electric
"See id. at 5.
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Company, Inc. , Docket No. 2009-0163,'^. and In re Hawaiian
Electric Company, Inc., Docket No. 2008-0083."
I.
Interim Rate Design
The interim rate design proposed by the Parties is
described as follows:
With respect to rate design, the Parties haveagreed in the Settlement Letter to allocate anyinterim or final increase in electric revenues to
rate classes in the percentages shown in thesection on Cost of Service/Rate IncreaseAllocation/Rate Design in Exhibit 1 of theSettlement Letter.^°
In HELCO T-1 (page 12) , the Company requestedthat the interim increase be structured as asurcharge for the various classes based on apercentage of the customer's base charges (i.e.,exclusive of Energy Cost Adjustment charges andother surcharges) . The Company pointed out that
this implementation method was used for recentinterim increases for Hawaiian Electric in DocketNos. 04-0113, 2006-0386 and 2 008-0083, HELCO inDocket Nos. 99-0207, 94-0140 and 05-0315, and for
^"See Interim Decision and Order, filed on July 27, 2010, inDocket No. 2009-0163, at 16 and 25.
59See Second Interim Decision and Order, filed on
February 19, 2010, in Docket No. 2008-0083, Exhibit A, at 1.
'^According to the section on Cost of Service/Rate IncreaseAllocation/Rate Design in Exhibit 1 of the Settlement Letter,the Parties agree to "assign the average percentage increase toSchedules [] G, J, and H; assign 67% of the average percentageincrease to Schedule P; and assign 125% of the averagepercentage increase to Schedule F; with the balance of theincrease assigned to Schedule R." See Settlement Agreement,Exhibit 1, at 96.
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MECO in Docket Nos. 94-0345, 97-0346 and2006-0387.
Joint Statement of Probable Entitlement at 6.
For purposes of interim rate relief, the commission
accepts the Parties' stipulated rate design, subject to the
adjustments directed by the commission herein.
III.
Orders
THE COMMISSION ORDERS:
1. The commission approves the interim rate relief
for HELCO, as set forth in the Parties' Joint Statement of
Probable Entitlement, filed on October 5, 2010, subject to the
adjustments discussed herein in Section II.
2. HELCO shall make the adjustments described in
Section II from interim rate relief, and file revised schedules
with written explanations as to the amounts . removed and any
other downward adjustments made to the schedules due to the
commission's mandates set forth herein no later than
November 24, 2010. The Consiimer Advocate may file any comments
on HELCO's revised schedules by December 3, 2 010.
3. The commission takes no action on HELCO's request
for: (a) approval of a PPAC; (b) implementation of an RBA and
RAM; and (c) implementation of a revised ECAC mechanism. Any
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requests related to the revised ECAC mechanism, including, but
not limited to, the implementation of the sales heat rate
deadbands, are deferred until the Final Decision and Order is
entered herein.
4. Any additional testimonies submitted for purposes
of final rate relief shall be filed by December 15, 2 010. The
Consumer Advocate may file any comments on HELCO's additional
testimonies for purposes of final rate relief by
December 23, 2010.
DONE at Honolulu, Hawaii N O V - 3 2 0 1 0
PUBLIC UTILITIES COMMISSIONOF THE STATE OF HAWAII
By. VUr . <^.-^Carlito P. Caliboso, Chairman Jpnn E. Cole, Commissioner
APPROVED AS TO FORM:
By.Leslie H. Kondo, Commissioner
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CERTIFICATE OF SERVICE
The foregoing order was served on the date of filing by
mail, postage prepaid, and properly addressed to the following
parties:
DEAN K. NISHINA
EXECUTIVE DIRECTOR
DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS
DIVISION OF CONSUMER ADVOCACY
P. 0. Box 541
Honolulu, HI 96809
DEAN K. MATSUURA
MANAGER, REGULATORY AFFAIRS
HAWAIIAN ELECTRIC COMPANY, INC
P. 0. Box 2750
Honolulu, HI 96840-0001