Wednesday, May 27, 2015

Price Tag of the NEM Cost Shift and the REITC

Yesterday I quoted from and referred readers to Professor Severin Borenstein's May 4, 2015 blog, Is the Future of Electricity Really Distributed?, where he said, "Instead of seeking the most affordable way to scale up renewables, the loudest voices (though possibly not most of the voices) in the renewables movement are talking about "personal power", Home energy independence", "empowering the consumer", and rejecting "government-created monopolies."  Generally, I would not have a problem with these opinions, but it is a problem when these advocates fail to understand the economics of producing reliable and affordable electricity and to whom the burden will fall to ensure this essential service.  Our failure to rectify and properly manage Hawaii's energy transformation may inadvertently create an unaffordable electric grid to serve the public good.

When I first started working on energy legislation, the primary objective in establishing a net-metering program (NEM), revising the Renewable Energy Income Tax Credit (REITC) and adopting a Renewable Portfolio Standard (RPS) was to create a renewable energy market. Establishing Hawaii's renewable market was critical because of our over-dependency on imported fuels and the impact of fuel price volatility on our economy, as well as environmental issues such as climate change. The NEM program and REITC would incentivize and reward early adoption and the RPS would establish a minimum floor to give certainty to investors that there would be a buyer (the electric utility) for electricity produced from renewable resources.  

Simply put, Hawaii progress has surpassed the need for the NEM and REITC early adoption strategies, with the burden of paying for the NEM program and REITC falling on non-NEM electricity ratepayers and taxpayers and causing the "purchase" of electricity generation that may not be the most cost-effective option.  Here is a snapshot of some of the past costs impacts on non-participants (unfortunately, more current, on-going cost were not publicly available for the REITC):

In a Motion filed with the HPUC (Docket No. 2014-0192, Hawaiian Electric Companies' Motion for Approval of NEM Program Modification and Establishment of Transitional Distributed Generation Program Tariff at 34-35), the HECO Companies quantified the NEM cost shift as follows:

The Companies estimate annualized lost contribution to fixed costs (cost shift) of approximately $53 million (Hawaiian Electric, $38 million; Maui Electric, $7 million; and Hawaii Electric Light, $8 million) based on installed NEM capacity as of December 31, 2014 . . . The total lost contribution to fixed cost across the Companies has increased from an estimated annualized $19 million based on installed NEM capacity as of the end of 2012, to an annualized $38 million at the end of 2013, and to an annualized $53 million at the end of 2014.

For the tax year 2012, the State Department of Taxation reports that the REITC accounted for 48.41% (total $179,018,000) of all state tax credits claimed (total $369,811,000).

Besides the HECO-NextEra merger application, I believe the most critical docket before the Hawaii Public Utilities Commission is the Distributed Energy Resources (DER) Investigation (Docket No 2014-0192) where the technical (integration and interconnection) and economic (correct pricing signals) are being investigated. Therefore, I am not writing this post to argue about the fair or unfair valuation of services distributed generation provides or its impact on the electric system but to bring awareness to the fact that Hawaii's energy policies are in need of review.  We are at a critical juncture where some of these policies are detrimental to the customer who does not own or does not have access to or chooses not to have a distributed generation system.

A successful energy transformation requires that everyone benefits from Hawaii's clean energy policies.   

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