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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 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 AND

CONSUMER AFFAIRS, DIVISION OF CONSUMER ADVOCACY
("Consumer Advocate"), an ex officio party to this proceeding,
pursuant to Hawaii Revised Statutes ("HRS") § 269-51 and Hawaii
Administrative Rules ("HAR") § 6-61-62(a).
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

2009-0164 2
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

2009-0164 3
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, in

Docket' No. 2 008-0083; and Order Approving HECO's Revised
Schedules, filed on August 3, 2009, in Docket No. 2008-0083.
^Interim Decision and Order, filed on July 2, 2009, in
Docket NO. 2008-0083, at 11.

^Id.

2009-0164 4
 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, in

Docket No. 2009-0163.
^In their Stipulated Settlement Letter filed therein, for
purposes of interim rate relief, MECO and the Consumer Advocate
agreed that "only the impacts to revenues and [net periodic
benefit] cost as proposed by the Consumer Advocate associated
with the employee discount will be eliminated from the test year
for purposes of the Interim Decision." See Stipulated Settlement
Letter, filed on June 21, 2 010, in Docket No. 2009-0163,
Exhibit 1, at 53.
In response to PUC-IR-103, which requested clarification as
to Schedule E, MECO stated that the Parties did not stipulate to
either continuing or eliminating Rate Schedule E. See MECO's
response to PUC-IR-103, filed July 8, 2010. MECO then reiterated
that if the employee discount is to be discontinued, it should be
terminated after the applicable collective bargaining agreements
have expired on October 31, 2010.

2009-0164
 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 the

Consumer Advocate.
^Stipulated Procedural Order, filed on August 17, 2010, in
Docket No. 2009-0321.
^Joint Motion for Approval of Stipulation of the Division of
Consumer Advocacy and Hawaii Electric Light Company, Inc. and
Stipulation, filed on October 5, 2010, in Docket No. 2009-0321.
"order Approving the Joint Motion for Approval of
Stipulation of the Division of Consumer Advocacy and Hawaii

2009-0164 6
 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 of
Direct Testimonies, filed on December 9, 2009 (collectively,
"Application"). The filing date of HELCO's complete Application
is December 9, 2009. See Order Regarding Completed Application
and Other Initial Matters, filed on February 2, 2010.

2009-0164
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 the

Commission's Decision and Order No. 18365 issued February 8, 2001
in Docket No. 99-0207, which utilized a 2000 test year, and
Interim Decision and Order No. 23342 issued April 4, 2007 in
Docket No. 05-0315, which utilized a 2006 test year."
Application at 16. A Final Decision and Order in Docket
No. 05-0315, which approved the interim increase granted in the
Interim Decision and Order No. 23342, was filed on
October 28, 2010. See Decision and Order, filed on
October 28, 2010, in Docket No. 05-0315. However, to date, HELCO
has not filed its revised tariff sheets and rate schedules, which
reflect the increase in rates granted by said Final Decision and
Order.

2009-0164
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

2009-0164 9
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 the
Energy Agreement on behalf of the State of Hawaii.
^^"HECO Companies" collectively refers ,, to HECO and its
affiliates, MECO and HELCO.

2009-0164 10
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, HELCO

further proposes that certain changes to its ECAC, as proposed in
Docket No. 2008-0274, be implemented upon issuance of interim
relief in this proceeding. See Application at 10-11.

2009-0164 11
 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 on

September 16, 2010.

2009-0164 12
 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 the
amount of $18,346,000 (with the resetting of
the ECAC target heat rates) over revenues at
current effective rates subject to temporary
approval of depreciation rates proposed in
Docket No. 2009-0321;

2, Approve the rate design for the interim rate

increase as described in the Joint Statement
of Probable Entitlement;

3, Approve the following to be effective at the

time 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 in

this docket; and

c. The implementation of the sales heat

rate 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 of
Probable Entitlement").

2009-0164 13
 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 has

previously noted:
[0]ur decision in this docket should be consistent with
precedent and that computational error committed by the
parties should be accounted for. However, in deciding
interim rate relief, the commission's scrutiny of both
the record and the discourse during the evidentiary
hearings is a search for showing of probable
entitlement. This search is necessarily quick, unlike
the careful deliberation the commission consistently
accords issues in rendering final decisions.
In deciding interim rate relief, the commission must
often postpone determinations of reasonableness with

2009-0164 14
 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 adjustment
to rates, fares, or charges to be billed in the
future, any amounts with interest, at a rate
equal to the rate of return on the public
utility's rate base found to be reasonable by the
commission, received under the interim rates that
are in excess of the rates, fares, or charges,
finally determined to be just and reasonable by
the commission. Interest on any excess shall
commence as of the date that any rate, fare, or
charge goes into effect that results in the
excess and shall continue to accrue on the
balance 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, the

speed with which [the public utility] is given interim
rate relief would be affected.
In re Hawaiian Elec. Co., Inc., Docket No. 04-0113, Interim
Decision and Order No. 22 050, filed on September 27, 2 005, at
5-6 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 the
Regulatory Schedule, filed on October 1, 2010,

2009-0164 15
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 that

regulation is intended to serve as a surrogate for
competition. Just as competition may drive
unregulated firms to lower costs and become more

'"See CA-T-1 at 62.

2009-0164 16
 efficient to support price reductions, regulators can
similarly be expected to put reasonable pressure on
utility companies to achieve additional economies and
implement 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 the
need for utilities to implement austerity
programs to constrain costs and tighten belts
to limit discretionary spending. We will
require a meaningful further downward
adjustment to the Company's revenue of
$60 million, half of which will be subject to
further review and potential deferred based on
a review of the Company's ability and best
efforts to implement the required measures
effectively.^^
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 thus
reduce 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 some
cases increase its O&M expenses over that
provided 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 the
New York Public Service Commission in Case 08-E-0539).

2009-0164 17
 reflecting reductions in sales and higher bad
debt attributable to the bad economy. While most
competitive business would seek avenues of
decreasing costs in response to economic
conditions, FPL is actually requesting an
increase 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 Florida

Power & Light Company, Docket No. 080677-EI, and In re: 2009
Depreciation and Dismantlement Study by Florida Power & Light
Company, Docket No. 090130-EI (Consolidated); Order
No. PSC-lO-0153-FOF-EI, filed on March 17, 2010, at 147-49.

^^Jay Ignacio, President of HELCO, acknowledged that the

global recession has directly impacted Hawaii County. In his
testimony, he stated that "the need for this rate case comes
during an economically difficult time for the State and the
communities of the Big Island, of which HELCO and its employees
are a part." See HELCO T-1 at 1.
"See CA-T-1 at 68.

2009-0164
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.

2009-0164 19
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 why

HELCO's requested salary and wage
increases of 7.87% for the non-merit
employees and 4.81% for the merit
employees are reasonable.

2009-0164 20
 2. Descriptions of all significant and
permanent cost reductions HELCO
considered and implemented to help
reduce its present rate increase
request. The descriptions of
cost-cutting measures should
demonstrate the detail of savings and
identify the saving amount of each
measure.

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.

2009-0164 21
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

2009-0164 22
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. Lau
to the commission, in Docket No. 2009-0048, at 4.
''see HELCO-WP-1104 at 22.

2009-0164 23
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 much

FlexPlan has reduced premium rates,
with a quantification of cost savings,
if any. Also, HELCO should explain how
FlexPlan can be effective when only
6.5 employees, or 1.7% of all
employees, elected to waive this
benefit.^^

2. Detailed explanation as to whether it

is reasonable for ratepayers to pay for
approximately ' $671.31 of a typical
HMSA^"*" PPP medical family coverage cost

'^HELCO may offset its premium payments with the flex

credits. However, in no event shall the ratepayers be
responsible for more than 50% of the health and insurance
benefits discussed herein.
'"see HELCO-1107.
'^"HMSA" refers to the Hawaii Medical Service Association, a
licensed provider of health care coverage in Hawaii.

2009-0164 24
 of $731.31 per month through their
electric rates.^^

3. With the overall PiMSA rates for 2010

increasing by 16.8%,^-^ HELCO should
provide detailed explanations as to the
following: (a) whether it is reasonable
to pass the entire increase on to
HELCO's ratepayers; (b) what HELCO has
done, i f anything, to prevent pass ing
on this increase to ratepayers;
(c) whether it is reasonable for HELCO
employees to" cover some or all of this
increase; and (d) what HELCO has done
to control or even reduce employee
benefits 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 reduce

Account 92 6.00 (employee pension and
benefits expense)?

2. Explain why retirement income earned at

a rate of 2.04%, not to exceed 67% (for
merit employees), and 1.83%, not to 60%
(for non-merit/bargaining unit

"See HELCO-1107
"See HELCO T-11 at 35.

2009-0164 25
 employees) for each year of service is
reasonable.

a. Would retirement income computed

at 1.25% times the total years of
credited service be reasonable?
Please explain in detail.

b. Beginning January 1, 2 011, what

would the pension expense be if
retirement income is computed at
1.25% times the total years of
credited service for both merit
and non-meri t/bargaining uni t
employees.

Has HELCO considered terminating its

non-contributory defined benefit
retirement plan and replacing it with a
401(k) retirement or similar plan where
HELCO matches employee contributions up
to a predetermined amount? (This
question assumes that service credits
earned by current employees will be
retained up to plan termination date.)

a. If HELCO were to implement a

401(k) retirement or similar plan
where HELCO matches employee
contributions up to a
predetermined amount, provide
details of this plan and its
projected cost to HELCO. (This
question assumes that this
retirement plan will replace the
current non-contributory defined
benefit plan. Please include
workpapers and schedules that
clearly explain HELCO's
computations and assumptions.)

2009-0164 26
 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.

2009-0164 27
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 of

Consumer Advocacy and Hawaii Electric Light Company, Inc. and
Stipulation, filed on October 5, 2010, in Docket No. 2009-0321.
^^See Order Approving the Joint Motion for Approval of
Stipulation of the Division of Consumer Advocacy and Hawaii
Electric Light Company, Inc. and Stipulation, filed on
October 13, 2010, in Docket No. 2009-0321.
^'id.
'^Settlement Agreement, E x h i b i t 1, a t 99.

2009-0164 28
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, if the

commission approves an RBA in this proceeding, the revised ECAC

^°Final Decision and Order and Dissenting Opinion of

Leslie H. Kondo, Commissioner, filed on August 31, 2 010, in
Docket No. 2008-0274.
''id. at 129.

2009-0164 29
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.

2009-0164 30
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 ,to
HELCO/CA'IR-401).
''See id^ (citing CA-T-4, at 59).

2009-0164 31
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.

2009-0164 32
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 have

agreed in the Settlement Letter to allocate any
interim or final increase in electric revenues to
rate classes in the percentages shown in the
section on Cost of Service/Rate Increase
Allocation/Rate Design in Exhibit 1 of the
Settlement Letter.^°

In HELCO T-1 (page 12) , the Company requested

that the interim increase be structured as a
surcharge for the various classes based on a
percentage of the customer's base charges (i.e.,
exclusive of Energy Cost Adjustment charges and
other surcharges) . The Company pointed out that
this implementation method was used for recent
interim increases for Hawaiian Electric in Docket
Nos. 04-0113, 2006-0386 and 2 008-0083, HELCO in
Docket Nos. 99-0207, 94-0140 and 05-0315, and for

^"See Interim Decision and Order, filed on July 27, 2010, in

Docket No. 2009-0163, at 16 and 25.
59
See 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 Increase
Allocation/Rate Design in Exhibit 1 of the Settlement Letter,
the Parties agree to "assign the average percentage increase to
Schedules [] G, J, and H; assign 67% of the average percentage
increase to Schedule P; and assign 125% of the average
percentage increase to Schedule F; with the balance of the
increase assigned to Schedule R." See Settlement Agreement,
Exhibit 1, at 96.

2009-0164 33
 MECO in Docket Nos. 94-0345, 97-0346 and
2006-0387.

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

2009-0164 34
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 NOV - 3 2010

PUBLIC UTILITIES COMMISSION

OF THE STATE OF HAWAII

By.
Carlito P. Caliboso, Chairman
VUr. <^.-^
Jpnn E. Cole, Commissioner
APPROVED AS TO FORM:
By.
Leslie H. Kondo, Commissioner

2009-0164 35
 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