Update: LOL Petition

Update:  On Monday, October 27,  the Hawaii Public Utilities Commission filed its decision and order to deny the petition and close the docket on Life of the Land's request to investigate other utility ownership and business models.  The Order, issued after receiving the preliminary statement of position filed by the Consumer Advocate on October 14, states, "LOL did not offer a specific 'draft or substance of the proposed rule or amendment' to be considered, but merely opined . . ."  The Order found:

On these facts, the commission concludes that LOL's
request to engage in rulemaking is "purely speculative"
and therefore agrees with the Consumer Advocate that, if the
Petition was granted, the "resulting proceeding will be unduly
broad and may involve a misallocation of available resources
towards [a] prolonged proceeding with an inconclusive ending."

The commission observes that LOL is a frequent
participant in commission dockets and should thus be familiar with
the commission's rules of practice and procedure, including the
requirements of HAR § 6-61-147. 

For these reasons, the commission finds and
concludes that the Petition should be denied insofar as it fails
"to comply with [HAR § 6-61-147] or to disclose sufficient reasons
to justify the rulemaking proceeding[.]" HAR § 6-61-148(b).  

Last week "Life of the Land's petition for the Commission to open an investigation on different business models and utility structures including B-corporations, electric cooperatives, private utilities, municipal utilities, share-holder owned utilities, grid-only utilities (independent system operators) and micro-grid utilities" was filed with the Hawaii Public Utilities Commission (PUC).  I guess if you make the title long enough there might be plenty of buzz words to get others to jump onboard.  In this case, I think Life of the Land (LOL) should withdraw its petition and spare the PUC and Consumer Advocate the time and expense trying parse the purpose of this petition.

First of all, the petitioner lacks an understanding of what a business model is meant to accomplish and who is responsible for its development.  In a Harvard Business Review article entitled “Why A Business Model Matters,” writer Joan Magretta describes its purpose, 

“[business models] are, at heart, stories—stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value? It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?
  

. . . At some level, all new stories are variations on old ones, reworkings of the universal themes . . . A new business model’s plot may turn on designing a new product for an unmet need . . . [O]r it may turn on a process innovation, a better way of making or selling or distributing an already proven product or service.  

. . . [A business model is key] as a basis for employee communication and motivation. Because a business model tells a good story, it can be used to get everyone in the organization aligned around the kind of value the company wants to create. Stories are easy to grasp and easy to remember. They help individuals to see their own jobs within the larger context of what the company is trying to do and to tailor their behavior accordingly. Used in this way, a good business model can become a powerful tool for improving execution.” 

As the electric sector is evolving, an electric utility's business model must be flexible and adaptable to address advancing technology and changing customer preferences.  It is the electric utility's responsibility to develop its business model to meet the performance standards and expectations of the regulator.  While the regulator can demand operational and financial performance and scrutinize the business model to achieve regulatory objectives, it is the responsibility of the electric utility to have an updated business plan to execute its productivity and ensure its profitability.

Simply establishing a venue for pontificating and plucking stuff out of the air for non-existent entities (with no business models mind you) for an electric utility already in a sale process is just not worthy of a PUC investigation.

If people want to argue the merits/demerits of a publicly-owned or municipal utility do it before the State Legislature or County Councils.  If the merits outweigh the negatives, then those elected officials should layout the game plan for eminent domain and address the charter and statutory changes necessary before bringing the ownership transfer issue to the PUC.  Proponents of an electric cooperative should establish their non-profit corporation and be able to put their money on the table to begin negotiations with the Hawaiian Electric Companies for its purchase.  You don’t need a PUC investigation to initiate any one of these change of ownership actions and it sure separates what's real from all the bs when you put the responsibility where it belongs.

A PUC investigation should begin only when there is something concrete to be evaluated where, if the Consumer Advocate prevails, the standard of review will be an evaluation of the substantial net benefits for the consumer. However, can't talk substantial net benefits when you are just plucking stuff from the air.

Reflecting on Yogi Berra & Pope Francis' Laudato Si

This week Yogi Berra passed away and Pope Francis visited the United States.  It's a toss up which event affected me more.  For solace I reached for my copy of The Yogi Book: "I Really Didn't Say Everything I Said!" This Yogi-ism jumped out at me, "If the world were perfect, it wouldn't be."  Explaining what he meant, Yogi said "I believe you have to take the good with the bad, otherwise how do you know when things are good?  If the world were perfect, how would you know?"

That Yogi-ism reflected perfectly how I am feeling this week after participating on Apollo Kauai's panel entitled, "LNG and Kauai's Energy Future?"  Having been labeled an environmentalist throughout my political career some now have found my positions on energy confounding and asked why the change.  I don't think I have changed, just that I have always preferred to have pragmatic rather than ideologue precede the environmentalist label.

I understand that most peoples' opposition to liquified natural gas (LNG) are based on their opinion on fracking.  But sometimes you have to take, not the good with the bad like Yogi said, but the bad with the good to get to the best.  Hawaii's clean energy transformation is not a straight shot to the perceived good of 100% renewable. And, 100% renewable isn't 100% clean either, it still relies on lots extraction of elements and industrial manufacturing amongst other things.  So according to Yogi Berra, if the world was perfect, it wouldn't be and I agree.

Getting caught up in the excitement of the papal visit, I wanted to learn more about Pope Francis' Laudato Si, the encyclical or papal letter to the Bishops of the Catholic Church.  Searching the internet I came across this article, entitled, "Danger of Turning Faith Into Ideology" written by the Reverend David Lewis, an assistant professor at Providence College, a Catholic University.  Here's an excerpt below and here's how I think it speaks to Hawai's energy transformation.  If Hawaii energy transformation is not grounded in reality (based in economics and technology) and only "breathe the heady air of the moral high ground" we are doomed to making this effort an elitist endeavor with the likelihood of placing the burden on those who can least afford it.

But best of all, here is an encyclical that enables even non-Catholics to hold two antitheses simultaneously. They can extol its demands as costly grace -- and sacrifice absolutely nothing. They can breathe the heady air of the moral high ground -- and never leave home. They can be spiritual -- without being religious.

At long last, they can bask in the approbations of their non-Christian neighbors, all the while reassuring them that Jesus demands nothing more than what common sense already acknowledges. They can work up a lather of indignation, all the while comfortable in the knowledge that they are preaching to the choir. And they can denounce corporate greed with a fine self-righteousness, since they are denouncing nothing more than an insubstantial generality.

I’ll leave it to the theologians and scientists -- I am neither -- to figure out the strengths and weaknesses of Pope Francis’ Laudato Si. Given the glacial flow of church history, this encyclical will not assume a definitive shape for at least another century. But as the ideologues clamber aboard the popemobile, we should remember the one temptation to which Christianity has been prone from its very beginnings.

Christians are forever tempted to turn their faith into a self-serving ideology. They always forget: Where faith thrives on ambiguities and aporias, an ideology is convinced it can hold onto truth like a dog on a short leash. Where faith asks of the Christian what William Blake called ceaseless mental fight, an ideology requires simply mindless assent. Where faith understands life as transient and perishable, an ideology would make this earthly life a permanent home.

And where faith never knows of a grace that isn’t costly, an ideology renders all things cheap, even grace.

 

Timing Is Everything & The Right Leadership Is Key

Leadership is about unlocking the potential of an organization.  I'm sure this is a principle in every book written about leadership but I happened to hear it this morning coming from Republican candidate Carly Fiorina in a rebuff against Trump.  Her statement triggered how I could pull together what I initially had thought were disparate subjects for a post.

Throughout the nation, the energy sector was abuzz yesterday with the announcement of Kauai Island Utility Cooperative's (KIUC) dispatchable storage contract with SolarCity.  David Bissell, its President and Chief Executive Officer said, "KIUC has been investigating energy storage options for more then two years and price has always been the biggest challenge."

Several years ago KIUC initiated an investigation into energy storage and conducted a request for proposal for energy storage, which was concluded over a year ago.  KIUC was clear about the operational objectives they wanted to achieve for the system.   KIUC's review of the proposals was quick and its rejection of the proposals were reasonable and clearly articulated. Simply put, at that time it was far cheaper and more reliable for KIUC to fire-up one of their fossil fueled quick start generators than to invest in nascent technology for bulk storage.  KIUC has now negotiated a contract with a price about 50% less (depending on fuel prices) than operating one of its quick start generators, and far, far less risky than making its own investment in nascent energy storage technology.

Leadership at various levels at KIUC, from the Board, senior executives and engineers, to those running the daily operations of the coop are to be commended and its organizational culture recognized as strategic and analytical, flexible, adaptive and innovative.  During this period of disruptive technology, leadership and an organization's cultural environment embracing strategic planning, analytics, flexibility, and adaptable innovation are key characteristics for a successful utility survival no matter what kind of ownership model.  KIUC has proven time and time again that its leadership, innovation and nimbleness are key reasons why it is often cited as an industry leader.

Unfortunately, Hawaiian Electric Industries (HEI), the holding company of the Hawaiian Electric Companies was slow to recognize the need for the right type of leadership for a business in transition.  Although a bit late, I strongly believe HEI made a good choice in finally naming Alan Oshima as CEO of Hawaiian Electric Company (HECO) last October.  Alan is familiar with disruptive technology and transformation, bringing his experience from the telecommunications sector.  Now, under Alan's leadership, the HECO Companies are undergoing and is in need of huge internal reforms to navigate change.  The question now is, can the HECO Companies move fast enough to survive the impacts of disruption to its evolving organizational structure and business model?

Like many other sectors, the emphasis is on Big Data.  As I mentioned in a previous post, as we move further away from the traditional central power design to integrating more renewable resources (both utility and customer sited systems) and unbundling and procuring other ancillary services typically provided by the utility, the utility's primary commodity shifts from electrons to data.  This paradigm shift requires the utility to be the aggregator of data - that is, the analysis and management of data for the efficient delivery and usage of the cleanest and cheapest electrons while maintaining power quality and stability of the grid at affordable rates.

In a McKinsey & Company report about the impact of big data and advanced analytics, capturing the potential of data analytics requires a strategic business transformation. There are three elements to this transformation:  (1) good planning (2) senior management capacity to really focus on data (rather than historic rules of thumb) and (3) ability to address the cultural and skill-building capacity challenges needed throughout the organization to embrace change. Therefore, the faster the HECO Companies can move away from its existing organizational process which is unable to accommodate analytics and automation with decision making protocols designed around multi-levels of approval to faster processes will determine its success in weathering disruptive influences as a public utility.   

Pronouncements without analysis (Governor) and new ownership models (certain politicians) do not delve into the operations of a utility - that is, addressing real issues that will lead to higher performance, customer satisfaction and, hopefully, more affordable electricity rates.  This can only happen with the right leadership and workforce investment to develop the skill set necessary to directly address this electricity paradigm shift and effect the necessary organizational and cultural changes to navigate this energy sector transformation.  It is these organizational and cultural changes that NextEra says it can accelerate and improve upon because of its experience.  We should be paying attention and evaluating that experience rather than putting up artificial challenges and roadblocks to stymie consideration of the merger.

Political leadership is also about unlocking potential and getting out of the way especially when one does not understand or is realistic about the business and technology dynamics of the energy sector.  This is just another reason why we should let the Consumer Advocate and the Public Utilities Commission do their job properly and without political influence.

Timing is everything and the opportunity cost will be huge if Hawaii misses the boat.  

Let the Consumer Advocate & PUC Do Their Jobs!

Yesterday's press conference held by some politicians need some good follow-up questions by journalists.  Questions like:  It's so easy for you just to say no to the merger, so have you mapped out a serious alternative strategy to reach the 100% renewable portfolio standard objective?  If so, how much is your alternative strategy going to cost?  As the public ownership option and dissolution of the franchise are solely in your hands what would be the timeframe for such a proposal?  What would be the opportunity cost for switching to a new ownership model?  Other than the Hawaii Island Energy Cooperative, what other non-profits have been formed to seriously look at cooperative models for Molokai, Lanai, Maui and Oahu?  If none, what will it take to form a credible non-profit to move forward, and again what would be the opportunity cost?  Do you understand that in these alternative models all risks is transferred to the electricity customer and taxpayer?  How do you feel about that? Or, what matters most, how do your constituents, who will be carrying 100% of the risk, feel about that?  And, the threshold question, are you willing to put State or County's money where your mouth is?  Who is going to upfront the money for a serious look at cooperatives?

I guarantee it's just lots of big talk and just more studies.  These people have very little understanding how much it will cost, where to start and what it will take to run an efficient and financially viable electric utility during a technological disruptive period.  As these politicians spew their "beliefs" - and that's just what it is, rhetoric not based in critical analyses or an understanding of utility operations or regulation - they create an unstable regulatory environment and business climate which has the potential to send up red flags and wreak havoc on HECO's ability to finance its operations with or without the merger.

During this time of transformation a well-functioning electric utility requires insightful leadership, nimble and flexible strategic planning and strong analytical capacity.  A particular ownership model does not guarantee any of these characteristics or qualities required for an electric utility to successfully navigate an energy transformation and may, in fact, hinder it with decisions based on politics and the need to weigh competing interests rather than fact, technology, economics and best practices.

This is why these politicians and the Governor need to let the Hawaii Public Utilities Commission, as the regulator, and the Consumer Advocate, whose statutory duty is to represent the interest of Hawaii's ratepayers, to do their jobs in evaluating the application and all the questions and responses to come to an evidence based decision that is in the public interest.