Smart Grid

605 Pages·2016·8.71 MB·English

BEFORE THE PUBLIC UTILITIES COMMISSION

OF THE STATE OF HA WAI'I

In the Matter of the Application of
)
)
HAWAIIAN ELECTRIC COMPANY, INC.,
)
HAWAI'IELECTRIC LIGHT COMPANY, INC.,
)
and MAUl ELECTRIC COMPANY, LIMITED
)
Docket No. 2 0 1 6 - 0 0 8 ?

)
For approval to commit funds in excess of
)

$2,500,000 for the Smart Grid Foundation Project,
)
to Defer Certain Computer Software Development
)
Costs, to Recover the Capital and Deferred Costs
)
through the Renewable Energy Infrastructure'
)

Surcharge, and Related Requests
)
)

APPLICATION OF

HAWAIIAN ELECTRIC COMPANY, INC.,

HAWAI'I ELECTRIC LIGHT COMPANY INC., and
MAUl ELECTRIC COMPANY, LIMITED

EXHIBITS A • I

VERIFICATION

and

CERTIFICATE OF SERVICE

Joseph P. Viola

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Vice President, Regulatory Affairs
Hawaiian Electric Company, Inc.

Vice President

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Hawai'i Electric Light Company, Inc.,
Maui Electric Company, Limited
P. O. Box 2750
Honolulu, Hawai'i 96840

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TABLE OF CONTENTS

I.
INTRODUCTION/EXECUTIVE SUMMARY ................................................................. 1

II.
REQUESTED APPROVALS ........................................................................................... 12

III.
APPLICANTS .................................................................................................................. 16

IV.
CORRESPONDENCE ...................................................................................................... 17

V.
EXHIBITS ........................................................................................................................ 17

VI.
BACKGROUND .............................................................................................................. 18

VII.
SMART GRID FOUNDATION PROJECT ..................................................................... 22

A.
SUBPROJECTS .................................................................................................. 24

1.
Advanced Metering Infrastructure ................................................................... 25

2.
Customer Facing Solution ............................................................................... 26

3.
Conservation Voltage Reduction ..................................................................... 27

4.
Direct Load Control ......................................................................................... 28

5.
Enterprise Data Warehouse ............................................................................. 29

6.
Enterprise Service Bus ..................................................................................... 29

7.
Meter Data Management System .................................................................... 30

8.
Outage Management System ........................................................................... 31

B.
CUSTOMER ENGAGEMENT .......................................................................... 32

C.
PROJECT MANAGEMENT OFFICE ............................................................... 33

D.
PROJECT SCHEDULE ...................................................................................... 34

VIII.
SGF PROJECT BUSINESS CASE .................................................................................. 36

A.
PROJECT COSTS .............................................................................................. 37

B.
PROJECT BENEFITS ........................................................................................ 40

1.
Quantified Monetary Benefits ......................................................................... 40

2.
Non-Quantified Benefits .................................................................................. 42

C.
PROJECT ECONOMIC ANALYSIS ................................................................. 42

IX.
ACCOUNTING AND RATEMAKING TREATMENT ................................................. 45

X.
REIP SURCHARGE COST RECOVERY ....................................................................... 47

A.
MODIFIED REIP FRAMEWORK ..................................................................... 47

B.
PRE-IN-SERVICE/GO-LIVE EXPENSES ........................................................ 48

ii

C.
DURATION OF SURCHARGE ......................................................................... 49

D.
BILL IMPACT .................................................................................................... 50

XI.
WAIVERS ........................................................................................................................ 50

A.
BACKBILLING OF SLOW METERS............................................................... 51

B.
IN-SERVICE PERFORMANCE TESTS ........................................................... 52

C.
METER SOCKET REPAIR................................................................................ 54

XII.
PROPOSED TARIFF ....................................................................................................... 56

XIII.
REPORTING .................................................................................................................... 57

XIV. STATUTORY PROVISION OR AUTHORITY.............................................................. 58

XV.
FINANCIAL STATEMENTS .......................................................................................... 58

XVI. IMPACT OF NEXTERA ENERGY MERGER ............................................................... 59

XVII. CONCLUSION ................................................................................................................. 59

BEFORE THE PUBLIC UTILITIES COMMISSION

OF THE STATE OF HAWAI‘I

In the Matter of the Application of

)

)
HAWAIIAN ELECTRIC COMPANY, INC.,
)
HAWAI‘I ELECTRIC LIGHT COMPANY, INC. )
and MAUI ELECTRIC COMPANY, LIMITED
)
Docket No.

)
For approval to commit funds in excess of

)
$2,500,000 for the Smart Grid Foundation Project, )
to Defer Certain Computer Software Development )
Costs, to Recover the Capital and Deferred Costs
)
through the Renewable Energy Infrastructure
)
Surcharge, and Related Requests.

)
)

APPLICATION

TO THE HONORABLE PUBLIC UTILITIES COMMISSION
OF THE STATE OF HAWAI‘I:

Hawaiian Electric Company, Inc. (“Hawaiian Electric”), Hawai‘i Electric Light

Company, Inc. (“Hawai‘i Electric Light”) and Maui Electric Company, Limited (“Maui

Electric”) (collectively the “Hawaiian Electric Companies” or “Companies”) respectfully submit

this Application in support of their Smart Grid Foundation Project (“SGF Project”).

I.
INTRODUCTION/EXECUTIVE SUMMARY

The SGF Project is essential to the State’s energy future and the Hawaiian Electric

Companies’ transformation into a more customer-oriented, flexible clean energy provider. The

establishment of a more dynamic and secure power grid that gives customers more control,

greater flexibility and more choices, responds to outages more quickly, seamlessly connects with

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cleaner energy resources, and better secures the grid from attacks (“Smart Grid”) is a necessary

step in order to achieve the State of Hawai‘i’s first-in-the-nation renewable portfolio standards

(“RPS”) goal of 100% renewable energy by 2045. The success of Hawai‘i’s Smart Grid will

require a collaborative effort by all stakeholders, including the utilities, regulators, government

entities, business and community groups, and electric customers.

Building a Smart Grid in Hawai‘i will not be accomplished in a single project, but will

evolve over time, by growing and layering capabilities that deliver additional value to customers.

The purpose of the SGF Project is to implement the initial Smart Grid capabilities that will serve

as the platform to support not only immediate customer benefits, but also as the cornerstone for

additional projects (separate and apart from the SGF Project) that can expand customer options,

such as optimizing the integration of distributed energy resources (“DER”), implementing

demand response (“DR”), time-of-use (“TOU”) rates and real-time-pricing (“RTP”), and

increasing reliability through distribution automation (“DA”). As delineated in the Companies’

Smart Grid Strategy and Roadmap (“Smart Grid Roadmap”),1 these additional initiatives will be

phased-in over the next several years through separate pending (e.g., DR Portfolio, DER TOU)

and follow-on (e.g., DA Project, RTP Tariff) applications. When taken in their entirety, the

overall bundle of benefits and capabilities set forth in the Smart Grid Roadmap supports an

overall positive business case over the next 20 years.

1 See Exhibit A at 26, Figure 9 (Near Term Smart Grid Related PUC Filings).

3

The SGF Project will enable foundational Smart Grid capabilities in five key strategic

areas:

(1)
Customer empowerment capabilities that that allow customers to monitor their

energy use patterns and make informed adjustments that can reduce their

consumption and lower energy expenses, as well as enabling a more

convenient means to participate in money saving rate options such as TOU

rates;

(2)
DER integration capabilities that will allow more customers to have DER

sooner, as a result of smart meters providing increased visibility into a power

grid that efficiently delivers reliable and safe energy to customers;

(3)
Grid efficiency, reliability and resiliency capabilities that will use smart

meters as sensors to automatically detect power outages and enable faster

restoration of power, as well as enable the Companies to burn less fuel to meet

customer demand for energy;

(4)
Safety and workforce efficiency improvements enabled by remote capabilities

that enable better detection of energy theft and also eliminate the need for the

Companies’ personnel to enter customer premises, which means fewer

accidents, faster service connections, more accurate billing and fewer

interruptions for customers; and

(5)
Innovation, information and connectivity that will make it easier for new smart

technologies (as developed) and customer-sited generation to build a smarter

energy infrastructure that delivers the benefits of new technologies to

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customers and leverages them for many uses, while proactively keeping

customer data safe, private and secure.

The SGF Project will consist of ten interrelated components:

• Eight subprojects, the scopes of which have been tailored based on a “best-

fit/least-cost” approach that utilizes commercially available and proven cost-

effective technologies to deliver the key foundational Smart Grid capabilities and

immediate value and benefits to customers, including:

o Installation of Advanced Metering Infrastructure (“AMI”) to provide two-way

communications and control between the Companies and the installed smart

meters that support the innovation, information and connectivity capabilities

of the Smart Grid;

o Creation of a Customer Facing Solution (“CFS”) that uses information from

smart meters, provided through online and mobile pathways, to give

customers more information and control over how they use their energy, while

improving the customer experience;

o Implementation of Conservation Voltage Reduction (“CVR”) technologies

that support the grid efficiency, reliability and resiliency capabilities by using

voltage measurements from the smart meters to enable the Companies to

improve efficiencies and burn less fuel to generate energy to meet demand;

o A Direct Load Control (“DLC”) subproject to upgrade existing DLC switches

on Oʻahu to improve monitoring and control of participating customers’ water

heater operations and stabilize the power grid during peak demand, in support

of the DER integration capabilities;

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o Development of an Enterprise Data Warehouse (“EDW”) to serve as the

central repository of the large amounts of data gathered over the AMI network

and other company data used to improve electric service to customers;

o Enhancement of the Companies’ existing Enterprise Service Bus (“ESB”) to

enable seamless flow of data through the Companies’ various computer

systems, also in support of the innovation, information and connectivity

capabilities of the Smart Grid;

o Implementation of a Meter Data Management System (“MDMS”) that will

capture and manage the customer interval energy usage data obtained from the

smart meters to enable automated billing and operational efficiencies such as

reduced truck rolls from eliminated manual meter reads; and

o Expansion of Hawaiian Electric’s Outage Management System (“OMS”) on

Oʻahu to Maui Electric and Hawai‘i Electric Light in order to improve outage

communications, and increase the speed and efficiency of power restoration;

• A ninth component for Customer Engagement (“CE”) activities to help customers

maximize the benefits of the new Smart Grid technologies and support the eight

subprojects listed above; and

• A tenth component for Project Management Office (“PMO”) services that also

support the eight subprojects above, as well as the CE activities, in order to ensure

smooth, cost-effective and coordinated project execution.

The SGF Project is scheduled to commence in early 2017 upon a decision and order

enabling the project to commence, and is expected to take five years to complete. Over the

course of the implementation, the Companies will continue to emphasize and carry out focused

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customer engagement activities similar to those conducted during their Smart Grid initial phase

demonstration project on O‘ahu (“Initial Phase”), building upon the lessons learned from those

activities to help customers maximize the capabilities of the newly enabled technologies and

options. The Companies will also continue to reassess and update their data privacy policies and

cybersecurity solutions in order to address the complexities that the new applications, network

access points and data add to their enterprise systems.

In general, the customer benefits of the SGF Project fall into the following three

categories: (1) “Operational Benefits” that benefit customers by reducing the revenue

requirements used to set base rates; (2) “Direct Customer Benefits” that inure directly to

customers, such as through adjustments in their energy use patterns that reduce consumption, as

well as through energy cost or other adjustment clause mechanisms; and (3) other benefits that

cannot be readily quantified at this time (“Non-Quantified Benefits”). The benefits attributable

to the AMI subproject (including benefits related to the MDMS, ESB and EDW subprojects),

portions of the OMS subproject (i.e., related to outage operational efficiency) and the internal

incremental labor offset are considered to be Operational Benefits, and are estimated at

approximately $294 million over the expected 20-year project life (i.e., from 2017 to 2036). The

benefits attributable to the CFS, CVR and DLC subprojects, as well as other portions of the OMS

subproject (i.e., related to value of service)2 are considered to be Direct Customer Benefits, and

are estimated at approximately $584 million over the 20-year project life. The sum of the

Operational Benefits and Direct Customer Benefits is approximately $878 million in nominal

2 The value of service benefit is based on the cost of electric service interruption to a customer (e.g., loss of
revenue, loss of materials/inventory due to interruption of refrigeration, etc.)

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dollars. The present value of these benefits over the 20-year life of the SGF Project investment

is approximately $345 million.

As summarized in Table 1 below, the total estimated cost of the SGF Project over its

five-year implementation period (i.e., the costs for which the Companies are seeking recovery in

the accompanying Application) is approximately $340 million. Included in this $340 million

cost estimate are approximately $206 million of capital costs, $75 million of deferred costs and

$59 million of incremental expense items.

SGF Project Implementation Costs (2017-2021)

Cost Component
Nominal ($millions)

AMI Subproject
180

CFS Subproject
9

CVR Subproject
26

DLC Subproject
18

EDW Subproject
10

ESB Subproject
10

MDMS Subproject
50

OMS Subproject
18

CE
8

PMO
11

Total
340

Table 1

In addition to the $340 million of SGF Project implementation costs listed above, after

the various releases of the subprojects are placed in service, the Companies anticipate that $345

million in additional costs will need to be incurred in order to support and maintain the

investment over its life (“ongoing costs”). Another $51 million of expense will be incurred in

connection with the Companies’ proposal to amortize the remaining book value of the existing

non-AMI meters over a ten-year period (“non-AMI meter amortization”). The sum of the SGF

Project implementation costs, on-going costs and non-AMI meter amortization is approximately

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$736 million in nominal dollars. The present value of these costs over the 20-year life of the

SGF Project investment is approximately $413 million.

In order to evaluate the overall financial impact of the SGF Project on a typical

residential customer, the Companies have performed an “economic analysis” that nets the

twenty-year SGF Project costs and ongoing costs against the Operational Benefits and Direct

Customer Benefits, taking into account the time-value of money, as shown in Table 2 below.

Present Value of 20-Year SGF Project & Ongoing Costs and Benefits

Smart Grid Capability
Project & Ongoing
Costs ($ millions)

Benefits

($ millions)

Automated meter reading, TOU support, interval
billing, remote connect/disconnect, enable RTP
314
116

Improved customer experience, options and access
12
54

Enhanced EnergyScout water heater DLC program
14
10

Energy efficiency via CVR
36
151

Enhanced outage management and automation
extension to Maui Electric and Hawai‘i Electric Light
30
7

Internal incremental labor offset
7
7

Total
413
345

Benefit-to-Cost Ratio (“BCR”)
0.84

Table 2

Although the overall bundle of benefits and capabilities of the larger spectrum of Smart

Grid capabilities detailed in the Smart Grid Roadmap supports an overall positive business case,

the SGF Project viewed in isolation has a BCR of 0.84. However, there are a number of benefits

of the SGF Project that cannot be readily quantified at this time, but which add to its value

proposition, including but not limited to:

• customer satisfaction improvements;

• increased data visibility to improve hosting capacity models for DER;

• environmental benefits from decreased reliance on imported fuel;

• economic growth in the local renewable energy industry; and

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• reduced carbon footprint via a reduction of greenhouse gas (“GHG”) emissions by

making the distribution and use of power more efficient.

In addition, the BCR does not consider the positive impact of the future opportunities to

increase functionality, flexible system capabilities, and expansion of customer options provided

by the SGF Project. For example, it is not possible to offer RTP without the MDMS solution

that is connected to an installed base of smart meters. Moreover, the Smart Grid network also

delivers enhanced value to existing DR programs by providing near-real-time communications

and usage information to customers and the utility. Other near-term initiatives also will build on

the capabilities enabled by the SGF Project. Thus, the SGF Project is one of the cornerstones

that will enable Hawai‘i to achieve the 100% RPS by 2045.

The typical monthly difference in costs to residential customers due to the investment

(i.e., taking into account SGF Project costs and on-going costs, Operational Benefits and Direct

Customer Benefits) over the 20-year life of the investment will range between 20 to 35 cents,

depending on factors unique to the Companies’ different service territories. This is projected to

peak in 2022 for the typical residential customer at approximately $1.70/month for Hawaiian

Electric and Maui Electric, and in 2020 at approximately $2.39/month for Hawai‘i Electric Light.

By the 2029-2030 timeframe, the typical monthly difference in costs to the customer will begin

to result in net savings, peaking at approximately -$1.59 for Hawaiian Electric, -$1.15 for Maui

Electric and -$2.35 at Hawai‘i Electric Light.

The accounting for the various SGF Project components generally follows the accounting

for capital expenditure and software projects approved by the Commission in the past. In

general, the cost of equipment and hardware and their related capital expenditures will be

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capitalized in accordance with Generally Accepted Accounting Principles (“GAAP”) and the

Companies’ current accounting for such costs.

Until their first respective rate case(s) following completion of the SGF Project, the

Companies are proposing to recover the SGF Project and related ongoing costs (net of

Operational Benefits) through the Renewable Energy Infrastructure Program (“REIP”) surcharge

(“Surcharge”) as described in the Joint Proposed Modified Renewable Energy Infrastructure

Program Framework (“Modified REIP Framework”) filed by the Companies and Division of

Consumer Advocacy of the Department of Commerce and Consumer Affairs (“Consumer

Advocate”) on June 15, 2015 in Docket No. 2013-0141.3 There are certain nuances to the SGF

Project that necessitated some tailoring of the application of the Modified REIP Framework to

address fairness in the context of cost recovery issues that can arise in connection with complex

undertakings such as the SGF Project. In order to address the unique and transformational nature

of the SGF Project, as well as its interrelated components, magnitude and duration, the

Companies are proposing certain measures to provide flexibility and further tailor the REIP

Surcharge to address the costs, benefits and timing of the various project components – namely,

the contemporaneous recovery of certain pre-in-service/go-live expenses via the REIP

Surcharge.

For purposes of calculating the bill impact of the SGF Project (i.e., the amounts to be

included in the REIP Surcharge and subsequent regulatory rate reviews to determine energy

rates), the SGF Project costs are offset in part by the Operational Benefits (but not the Direct

3 See generally Order No. 37235 (“Order 37235”), filed March 31, 2015 in Docket No. 2013-0141.

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Customer Benefits, which are included in the economic analysis discussed above) of the

investment. Over the twenty-year life of the investment, the bill impact for a typical residential

customer will range between $0.56 and $4.43. The average bill impact at Hawaiian Electric,

Maui Electric and Hawai‘i Electric Light is estimated to be $2.01, $2.05 and $2.75, respectively.

The Companies are cognizant of the Commission’s direction that the Companies’ filings

should not assume approval of the merger that is pending in Docket No. 2015-0022. However,

in light of the Commission’s request in other pending dockets that a “merged scenario” be

provided in order to allow for discussion on how the proposed change in ownership would

impact the SGF Project, NextEra Energy, Inc. (“NextEra Energy”) has provided a SGF Project

business case under a scenario that assumes the merger of NextEra Energy and the Hawaiian

Electric Companies is approved (“Merged Business Case”).4

The major differences between the Merged Business Case and the Companies’ Business

Case are that: (1) AMI implementation would be accelerated from five to three years; (2) supply

chain costs for some equipment and outside service costs would be reduced by 5%; (3) some

solutions being used by NextEra Energy’s subsidiary Florida Power & Light Company (“FPL”)

could be leveraged (e.g., FPL’s MDMS and ESB); and (4) key FPL personnel would provide

additional expertise, thus mitigating project execution risks. The Companies have already been

working with NextEra Energy in planning the SGF Project and accordingly, many of FPL’s

lessons learned have already been incorporated into the SGF Project during the initial design and

development of the application. In sum, the Merged Business Case indicates that the merged

4 See Exhibit I.

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companies will be able to bring SGF Project benefits to Hawai‘i’s residents faster, at a lower cost

and with lower overall risk.

II.
REQUESTED APPROVALS

The Hawaiian Electric Companies respectfully request a decision and order approving:

(1)
the total estimated cost to implement the SGF Project (“SGF Project Costs”) of

approximately $340 million, including $206 million of capital costs (“Capital Costs”),

$75 million of deferred costs (“Software Development Costs” or “Deferred Costs”)

and $59 million of incremental expense items (“Expense”) as discussed in Section

VIII.A below and further detailed in Exhibit B;

(2)
The accounting and ratemaking treatment proposed to be applied to the SGF Project,

as discussed in Section IX below and further detailed in Exhibit F, including:

(a) a commitment of funds in excess of $2,500,000, excluding customer contributions

for the Capital Costs under Paragraph 2.3(g)(2) (“Rule 2.3(g)(2)”) of the

Commission’s General Order No. 7, as modified by Decision and Order No.

21002 filed May 27, 2004 in Docket No. 03-0257;

(b) deferral of the Software Development Costs pursuant to the Companies’ policy

for Accounting for the Costs of Computer Software Developed or Obtained for

Internal Use (“Software Accounting Policy”) and Decision and Order No. 18365

(“D&O 18365”) filed February 8, 2001 in Docket No. 99-0207 (“Hawai‘i Electric

Light 2000 test year rate case) and accrue an allowance for funds used during

construction (“AFUDC”) during the deferral period, and/or, if the Commission