In its Inclinations document, the Hawai‘i Public Utilities Commission ( Commission) emphasized the importance of reliable and high quality electric service for Hawai‘i, and in the current proceeding (Docket No. 2013-0141) has taken steps to ensure that it, consumers and interest groups have access to specific measures concerning the ongoing performance of the Hawaiian Electric Companies.2 The Commission is currently in the process of determining if it should implement targeted performance incentives (TPIs), which are essentially the attachment of financial penalties and rewards to select performance measures. The Companies have requested that The Brattle Group assist them in analyzing the application of performance incentives to electric utilities and to recommend incentives that may be appropriate to implement in Hawai‘i.

Our primary focus was on determining potential performance incentives that would ensure that key elements of electric service, mainly reliability and customer service, were not impaired because of cost pressures, or cost reduction incentives, facing the Companies. Accordingly, we applied our understanding of incentive based regulation (IBR) and performance incentive frameworks to the circumstances in Hawai‘i and identified specific measures that should be included in a TPI plan. We also developed recommendations concerning: the targets for TPI performance; the parameters for a deadband (around the target levels); the maximum levels of penalties/rewards; the degree of incentive symmetry; and, incentive formulas (concerning the slope and shape of the curves governing the incurrence of penalties/rewards).

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