FINAL CERTIFICATION OF THE HECO/MECO/HELCO INTEGRATED RESOURCE PLANNING PROCESS:

CERTIFICATION OF KEY PHASES III, IV AND V

Phase III: Resource Planning Analyses

Phase IV: Development of Action Plans

Phase V: Final Integrated Resource Planning Report

Hawaiian Electric Company, Inc. (HECO) Maui Electric Company, Ltd. (MECO)

Hawaii Electric Light Company, Inc. (HELCO) Docket No. 2012-0036

By Carl Freedman, IRP Independent Entity

July 29, 2013

This Final Certification (Final Certification) provides an evaluation of the final three key phases of the IRP planning process conducted by the HECO, MECO and HELCO utility companies (HECO Companies). This planning process is the first implementation of IRP under a revised and revitalized IRP Framework (Framework)1. In accordance with the Framework, the Independent Entity (IE) must certify, at specified points in the planning process, that the planning process is being conducted consistent with the Framework. The Framework specifies that the IE shall:

certify that the planning process, up to the date of the certification, was conducted consistent with the framework. Each certification shall include such information as may be specified by the Commission and shall be provided to the Commission no later than ten (10) days following the utility's completion of each of the following key phases; establishment of Scenarios to be evaluated, establishment of planning assumptions, end of the analyses resulting in the Resource Plans for the Scenarios, development of the Action Plan, and filing of the Integrated Resource Planning Report. The Commission may require a similar certification for other steps in the process. [Framework III.C.2.b.(6) at page 6]

The HECO Companies filed a Notice of Completion of the first two key phases of the IRP process with the Commission on December 21, 2012. The IE’s corresponding Certification of Phases I & II of the HECO/MECO/HELCO IRP Process (Phase I & II

1 “A Framework for Integrated Resource Planning” dated March 9, 1992, Revised: March 14, 2011 adopted by the Commission by Decision and Order dated March 14, 2011 in Docket No. 2009-0108.

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Certification), dated December 31, 2012, was timely filed with the Commission on January 2, 2013.

The HECO Companies filed the final Integrated Resource Planning Report (IRP Report) with the Commission on June 28, 2013. The filing of the IRP Report marks the completion of the final three key phases of the IRP process.2

By Order No. 31311, dated June 21, 2013, the Commission amended the IRP process schedule to provide for an additional IRP Advisory Group meeting, established a comment period for comments by Advisory Group members and determined that the IE’s certification of outstanding phases should be provided within ten days of the additional Advisory Group meeting. By subsequent Order No. 31359, dated July 15, 2013, the Commission established July 29, 2013 as the filing date for the Final Certification.

SCOPE AND APPROACH FOR THE FINAL CERTIFICATION

The scope of the Final Certification includes all pertinent aspects of all five key phases of the HECO Companies’ IRP process. The Final Certification is explicitly required to address the final three key phases of the IRP process: (3) the end of the analyses resulting in the Resource Plans for the Scenarios, (4) the development of the Action Plan, and (5) the filing of the Integrated Resource Planning Report. In addition, the Final Certification provides final evaluation regarding the certification of the provisional findings of the Phase I & II Certification.

The applicable standards used in the Final Certification include the pertinent sections of the Framework, notably including whether the “Principal Issues” identified for the IRP process are meaningfully addressed.3 In particular, the Final Certification examines 2 The date of completion of each key phase of the IRP process is determined by protocols established by the IE. After consultation with Commission staff, the IE provided a memorandum to the HECO Companies by email transmission and posting to the IE web site, Protocols for Completion of Each Key Phase of the IRP Process, dated November 28, 2012. This memorandum was provided as an attachment to the IE’s initial certification: Certification of Phases I & II of the HECO/MECO/HELCO IRP Process, filed with the Commission on December 31, 2012. The protocols established by the IE’s memorandum require the HECO Companies to provide written notice to the Commission and the IE upon completion of each key phase of the IRP process. The filing of a Notice of Completion is the basis for determining an exact date of completion of each key phase of the IRP process.

The HECO Companies did not provide any Notice of Completion regarding completion of the third or fourth key phases or regarding the filing of the IRP Report. The IE therefore interprets the filing of the IRP Report to implicitly signify the simultaneous completion of the last three key phases of the IRP process. 3 The Framework includes the identification and definition of “the principal issues to be addressed in the planning process” (Principal Issues) as the first “step” in the Specific Planning Guidelines. [Framework V.C.1 at page 17]. The HECO Companies have identified the Principal Issues to be addressed in the IRP process in Chapter 4 of the IRP Report titled: Principal Issues to Address. The content of the companies’ Chapter, Principal Issues to Address is derived

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whether the IRP process was conducted consistent with the Framework, including whether the IRP Report complies with Framework requirements and whether the Principal Issues are meaningfully addressed.

The approach taken by the IE to determine compliance with the Framework included several line by line examinations of the Framework provisions and the identified Principal Issues. The IE’s findings for each pertinent provision are documented in two later sections of this Final Certification.

The scope of materials and subject matter examined documenting the IRP process includes notes and direct experience from all of the Advisory Group meetings, presentation slides and other materials distributed to the Advisory Group, the IRP Report including Appendices, as well as supplementary spreadsheets provided by the HECO Companies documenting the analyses presented in the IRP Report.4

Several clarifications regarding this Final Certification should be noted:

• This Final Certification is not intended to be a comprehensive review of the merits or accuracy of the analyses, conclusions or content of the IRP Report and Action Plans. This is an evaluation of compliance with Framework requirements and, as noted above, determination whether the Principal Issues are meaningfully addressed. This inevitably includes some evaluation and determinations regarding the merits of the IRP Report, Action Plans and the supporting analyses. The fact that the Final Certification addresses some of the merits of subject matter should not, however, be interpreted as any attempt at a comprehensive effort.

More specifically, the Final Certification does not attempt a comprehensive evaluation or determination regarding the reasonableness or merits of the various elements in the HECO Companies’ Action Plans. The Framework and Principal Issues include several requirements regarding the merits of the Action Plans, including requirements that the Action Plans must represent a reasonable course of action, must provide “the greatest value and flexibility across as many of the evaluated Scenarios and Resource Plans as reasonably practicable”, and must be supported by meaningful supporting analysis. As far as any comprehensive treatment, beyond determining compliance with Framework requirements and addressing the Principal Issues, the Final Certification focuses on whether the

primarily from the language in the Commission’s Order No. 30534: IDENTIFYING ISSUES AND QUESTIONS FOR THE HAWAIIAN ELECTRIC COMPANIES’ INTEGRATED RESOURCE PLANNING, dated July 19, 2012 in Docket No. 2012-0036 (Order Identifying Issues and Questions). There appear to be no intentional differences in meaning between the two documents. Where there may be incidental differences in meaning, it is understood that the meaning in the Commission’s Order will be applied. 4 All written materials distributed to the Advisory Group are documented on a publically accessible web site (IRPIE.COM) managed by the IE and are ultimately forwarded to the Commission’s Document Management System.

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Action Plans are supported by sufficient, meaningful analysis in accordance with the more specific requirements and guidance of the Framework and Principal Issues. The Final Certification does include some probative examination and evaluation of the merits of the analyses and conclusions in the IRP Report and Action Plans, but a comprehensive treatment of the merits is not attempted and would, in any case, require adequate opportunity for discovery and the participation of interested parties.

• The Final Certification does not attempt to determine the reasonableness or diligence of the HECO Companies’ efforts to provide a compliant IRP Report and Action Plans. The Final Certification is a straight-ahead evaluation of compliance with Framework requirements and Principal Issues (and merits of subject matter to the extent examined) without regard to whether the requirements are reasonable or whether there is justifiable cause where shortcomings are identified.

• Although not specifically cited, the Final Certification includes several concerns identified in comments by Advisory Group members in the final set of Advisory Group comments (provided as attachments) and comments offered throughout the IRP process. No attempt is made to characterize or restate all of the comments provided by the Advisory Group. Omission in the Final Certification does not imply disagreement with the comments provided. The IE expects that the Commission, as previously indicated, will review the Advisory Group comments, first hand, with interest.

SUMMARY OF FINDINGS

Several principal findings in this Final Certification are briefly summarized below. Compliance with each of the pertinent Framework provisions and each of the Principal Issues is documented in two following sections. As indicated in the later detailed sections, the IRP Report and Action Plans are compliant with many Framework provisions and provide substantial analysis addressing the Principal Issues. For purposes of brevity, the summary of findings below focuses on identified shortcomings of the IRP process, IRP Report and Action Plans.

Ultimate Finding

The IE cannot certify that the HECO Companies’ planning process was conducted consistent with the Framework. As explained below, several aspects of the IRP process, the IRP Report and the Action Plans, are not compliant with specific Framework requirements and do not meaningfully address several of the Principal Issues.

General Findings

• The conclusions asserted in the IRP Report, that the HECO Companies can meet and exceed Renewable Portfolio Standards (RPS) requirements economically, and that this can be accomplished without inter-island energy transmission are based

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on several presumptions that are not supported by analysis or probative examination in the IRP Report.

o It has not been demonstrated that the extensive amounts of variable renewable generation assumed in the final resource plans can be accommodated on the utility systems reliably, without substantial curtailment and without substantial (and currently unaccounted) costs.

o It has not been demonstrated that the extensive amounts of assumed distributed renewable generation assumed in the final resource plans can be interconnected with the utility distribution systems reliably and without substantial (and currently unaccounted) cost.

o It is not clear and it is not addressed whether the extensive amounts of economical renewable generation resources assumed on the HECO system can be sited on the Island of Oahu restricted only by utility system economic criteria.

• The rate and bill impacts of the Action Plans are understated and downplayed in the IRP Report but represent substantial concerns for all of the HECO Company systems.

o Rates and bills for all customer classes for all of the HECO Companies are projected to increase substantially over the initial five-year Action Plan period.

o Concerns regarding customer exit in response to higher rates (and further exacerbation of rate impacts) have not been sufficiently addressed or dispelled in the IRP Report.

• The IRP process fell substantially behind schedule, contributing, at least in part, to several shortcomings in the IRP process.

o There was no opportunity for Advisory Group input regarding the determination of the final resource plans or the formulation of the Action Plans. The final resource plans and Action Plans were presented for the first time in the final IRP Report.

o The HECO Companies did not determine, rank or prioritize final resource plans based on any clear or identified criteria. Criteria were not determined with input from the Advisory Group as required by the Framework.

o The HECO Companies’ consideration of Advisory Group comments was minimal.

o The amount of analysis, progress and work performed by the HECO Companies in the final weeks of the IRP process was impressive. Reviewing the resulting amount of new previously un-presented material in the IRP Report was a challenge for the IE and the Advisory Group. There

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was very limited opportunity for clarifications regarding the new material presented.

Addressing the Principal Issues

Discussion regarding the extent to which the IRP Report addresses each of the Principal Issues is provided in a later section. In many respects the IRP Report provides meaningful analysis addressing the Principal issues. Several exceptions are summarized below.

• The consideration of costs and rate impacts in the IRP Report has several shortcomings:

o The HECO Companies did not enlist the participation of the Advisory Group in determining meaningful methods to measure or present rate impacts (as required).

o The Companies did not enlist input from the Advisory Group to consider whether the IRP Report and Action Plans result in affordable energy service (as required).

o Except for presentation of several metrics and charts showing bill and rate impacts, the affordability of energy services is not explicitly or substantially addressed in the IRP Report.

o Rate and bill impacts presented in the IRP Report are unduly optimistic. Rate impacts are underestimated in several respects and are presented in a manner that de-emphasizes concerns.

o The IRP Report does not meaningfully address the concerns expressed in the Principal Issues regarding rate impacts on “captive” customers “who do not have a renewable energy device or have implemented energy efficiency measures could face high cost and rate impacts if utility sales decrease for any of several possible causes”.

• The IRP Report does not identify the nature, amount or costs of necessary ancillary services to accommodate the amounts of variable renewable generation assumed in the final resource plans and Action Plans.

• The net costs and associated rate impacts of implementing the RPS are not meaningfully determined in the IRP Report. The analyses of the final resource plans do not include the necessary measures and costs of incorporating the assumed renewable resources on the utility systems reliably and without substantial curtailment.

• The analyses of inter-island and inter-utility system transmission in the IRP Report are indeterminate. Meaningful analysis would require more detailed modeling and appropriate analysis design and assumptions.

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• Substantial benefits of smart-grid implementation are identified in the IRP Report but the required analyses of costs and benefits are not provided.

• Meaningful analysis of strategies to comply with environmental air quality regulations is provided. Further analysis is required regarding consideration of generation unit retirement options and analysis of several substantial uncertainties.

• The analysis of energy efficiency measures and programs in the IRP Report is rudimentary.

o No specific energy efficiency measures or programs are being identified, characterized or analyzed. Simplified generalizing assumptions are used to characterize the merits of alternate intensities of energy efficiency implementation and attainment of the EEPS.

o Although analysis demonstrates that increased implementation of energy efficiency programs substantially lowers total customer costs, the Companies’ conclusions regarding further program implementation focus negatively on rate impacts.

• It is not clear that the Action Plans represent “the greatest value and flexibility across as many of the evaluated Scenarios and Resource Plans as reasonably practicable” or necessarily represent a reasonable course of action.

o As discussed in several sections of this Final Certification, several aspects of the Action Plan are not supported by sufficient meaningful analysis. The Action Plans (and the IRP Report more generally) do not present an overall well-analyzed, robust course of action based on clearly laid out supporting plans and alternate plans.

o There is no explicit analysis that demonstrates how the Action Plans are optimal or represent greatest value.

o It is not explained and it is not clear whether or how the formulation of the Action Plans and determination of the final resource plans were determined based on the identified planning objectives.

• It is not clear that the Action Plans provide substantial value in providing context and framing for later incremental decisions, based on the best and current available information. The Action Plans do not identify how, when or by what criteria decisions between the possible alternate preferred, contingency, parallel or secondary plans will be made.

IRP Framework Requirements

To the extent not addressed in the general issues or regarding the Principal Issues above, compliance with several Framework requirements is summarized below:

• The HECO Companies’ consideration of advisory group input generally was not exemplary but was minimally compliant.

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• The HECO Companies did not determine, rank or prioritize final resource plans based on any clear or identified criteria. Criteria were not determined with input from the Advisory Group as required by the Framework. The IRP Report does not identify whether or how the planning objectives and metrics were used to formulate or determine the final resource plans.

• It is not clear and it is not described how the Action Plans were formulated. It is not clear whether or how the planning objectives were utilized in formulating the Action Plans.

• Generally, the IRP Report fails to consistently identify and describe uncertainties in assumptions and weaknesses in analysis methods.

• The scope of resource options considered and analyzed in the process does not include “all appropriate, available, and feasible resource options”.

o Several resource options, including resource options identified in previous IRP plans, by advisory group members and/or listed in the Framework are not explicitly included in the resource options characterized for analysis.

o Resource options were not screened (as required) based on any of the specific screening criteria identified in the Framework or according to other criteria established with input of the advisory group.

• The IRP Report does not evaluate customer-sited distributed generation strategies. It remains unaddressed what investments in utility system infrastructure or expenditures towards mitigating system operating protocols are sufficient and justified to accommodate additional variable renewable distributed generation resources.

o Customer-sited distributed generation was considered in the analyses only as an assumption, as a subtractive component in the demand forecasts in the planning scenarios. This approach does not produce meaningful evaluation of the merits or detriments of distributed generation resources.

o The system upgrades and associated costs necessary to effectively interconnect distributed generation have not been identified or included in the analyses of the final resource plans or projections of rate impacts.

• The costs of providing the ancillary services necessary to accommodate additional variable generation resources will be evaluated, either in absolute terms or in terms of comparing alternate means to provide necessary ancillary services.

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SPECIFIC ISSUES

Uncertainty Regarding the Feasibility and Cost of the Final Resource Plans

The HECO Companies’ Action Plans for the HECO, HELCO and MECO systems are based on four final resource plans, including a preferred plan, a contingency plan, a parallel plan and a secondary plan (final resource plans). Each of the final resource plans assumes large penetrations of economical variable renewable energy resources.

Three overall conclusions asserted in the HECO Companies’ IRP Report are: (1) that the Companies can meet and exceed Renewable Portfolio Standard (RPS) requirements, (2) that this can be accomplished economically and (3) that this can be accomplished without need for inter-island undersea energy transmission.

These conclusions are based upon at least three foundational presumptions: (1) that it is feasible to accommodate the extensive amounts of variable renewable generation assumed in the final resource plans for each utility system reliably, without substantial costs and without substantial curtailment, (2) that the extensive amounts of assumed distributed renewable generation can be interconnected with the utility distribution systems without substantial cost and (3) that the extensive amounts of economical renewable generation resources assumed on the HECO system can be sited on the Island of Oahu restricted only by utility system economic criteria.

As discussed in more detail in three sections below, none of these presumptions is supported by analysis or probative examination in the IRP Report. Although it is possible that the assumed amounts of renewable generation might ultimately be sited and feasibly incorporated in the utility systems as presumed, this is far from certain and is subject to reasonable doubt. It is certain, however, that in order to site and accommodate the assumed amounts of renewable generation without substantial curtailment, substantial system operation and infrastructure improvements would be necessary that are yet unidentified and would incur costs that are not accounted for in the final resource plans or projections of rate impacts in the IRP Report. In this respect, the costs and rate impacts associated with the final resource plans and Action Plans are understated.

The uncertainties regarding the conclusions in the IRP Report cited above need to be more clearly explained and need to be considered by Hawaii’s decision makers. Before the Legislature raises the RPS requirements based on the findings of the IRP Report (as has already been publicly suggested) the conditional nature of the Report’s conclusions should be well understood. In decisions regarding any approvals of the Action Plans proposed in the IRP Report, the Commission should carefully consider the uncertainties and limitations in the nature and scope of supporting analysis.

Feasibility and Cost of Accommodating Extensive Variable Renewable Generation.

The final resource plans for the HECO, HELCO and MECO Maui Island systems include extensive amounts of variable renewable generation resources. The inclusion of these resources in the final resource plans is the basis for meeting (and exceeding) the RPS requirements economically in the supporting analyses.

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Table A. This table, prepared by the IE, shows the amounts of variable renewable generation nameplate capacity assumed in each of the final resource plans for the HECO, HELCO and MECO Maui Island systems along with the amounts of variable generation assumed in several scenarios of the Hawaii Solar Integration Study, Final Technical Report for Oahu, dated December 7, 2012 and Final Technical Report for Maui, dated December 19, 2012.

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The magnitudes of assumed variable generation assumed on these utility systems (shown on Table A. above) are extreme and unprecedented. On the HECO utility system, for example, at the end of the planning period (in the year 2033) the final resource plans include a range of 1099 MW to 1309 MW of variable renewable generation capacity. This is a very large proportion of the 1334 MW peak system demand projected for that year. The proportions of variable generation assumed for the MECO system are more extreme, substantially exceeding annual peak demand for each of the final resource plans.

As characterized by the HECO Companies at the July 10, 2013 Advisory Group meeting, accommodating the assumed amount of variable renewable generation is “a new frontier” that has not yet been figured out. There is essentially no examination or discussion in the IRP Report regarding whether it is feasible to operate the mix of resources presumed in the final resource plans in the later years of the planning period. This challenge certainly has not been addressed in the analyses supporting the IRP Report.5 Indeed, the analyses of the resource plans, final resource plans and Action Plans do not appear to produce credible or accurate results regarding the incorporation of variable renewable generation in several important respects.

(1) The supporting analyses appear to substantially underestimate the expected amount of curtailment of variable renewable generation. For the HECO system, for example, the amount of curtailment of variable renewable resources reported and accounted in the analyses of the final resource plans is zero. This is not a credible result, and is not consistent with actual experience on the existing utility systems6 or the findings of several recent more detailed studies, including the Hawaii Solar Integration Study (HSIS) for the HECO and MECO Maui Island systems.7 These studies include substantially more detailed modeling of variable generation on the utility systems than the analyses presented in the IRP Report. The HSIS for HECO and MECO indicate that substantial curtailment of variable renewable generation would occur assuming amounts of variable generation substantially lower that what is assumed in the final resource plans.8

5 The Companies confirmed at the July 10, 2013 Advisory Group meeting that the development of the IRP Report did not include an examination of the daily load patterns for utility generation resources expected in the later parts of the planning period. 6 Both the MECO and HELCO systems currently experience curtailment due to excess generation conditions regularly at proportions of variable generation much lower than what is assumed in the final resource plans. 7 These studies are described generally in the IRP Report at p. 8-7 and pp. 8-11 to 8-12. 8 For the one scenario considered in the HSIS for the HECO system that approximates the amount of solar variable generation assumed in the final resource plans (over 700 MW) the amount of predicted daytime curtailment exceeds 200 MW. (HSIS Scenario 4A, shown on Table A).

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The underestimation of curtailment by the Strategist model can be at least partly explained by the fact that it does not realistically simulate the pronounced and unprecedented bimodal daily pattern of loads that would need to be served by the utility generation system in the later years of the planning period in the final resource plans.9

The Strategist model, as configured in the analyses of the resource plans, final resource plans and Action Plans, is not sensitive to the sequence of hourly loads and is blind to the bimodal daily pattern of utility generation requirements.10 Consequently, modeling assumptions, including assumptions regarding cycling of utility generation units, are not realistically simulated in the model. Since the model does not differentiate between low daytime loads and low nighttime loads, the units that are assumed to cycle daily are essentially modeled as if they cycle twice daily. It is true that utility generation units would need to ramp up and down for two cycles daily to accommodate the mix of resources assumed in the final resource plans, but it is not expected and it is probably not feasible for some cycling units, particularly baseload units converted to cycling duty, to cycle two times daily.11

Said another way, the Strategist model does not sufficiently constrain the simulation of utility system operation in daytime hours to accurately reflect expected generation unit operation constraints. This results in underestimating excess generation conditions, underestimation of renewable generation curtailment, and underestimation of utility system operation costs. These inaccuracies affect the costs, rate impacts and attainment of the RPS that are presented in the IRP Report for the final resource plans and Action Plans.

(2) The analyses in the IRP Report do not sufficiently account for the system operation needs and necessary ancillary services to accommodate the extensive amounts of

9 The planning and supporting analyses in the IRP Report do not consider or account for the fairly extreme bi-modal nature of the pattern of daily loads that will need to be served by utility generation resources later in the planning period (and throughout the remainder of the study period). On the HECO system, for example, over 700 MW of solar generation is assumed in later years of the planning period that would lower daytime utility system generation requirements to levels that are substantially lower (about half) of existing or projected night time minimum loads. Contributions of wind generation would add further random extremity to the daily pattern of utility generation load requirements. On the MECO and HELCO systems, the solar generation component of variable renewable generation is proportionately smaller but the larger proportion of assumed wind resources would produce more extreme, albeit less regular, utility generation load requirement patterns. 10 Configuration of the model to consider daily subperiods could improve results. Analysis of at least several resource plans, using a sequential hourly or sub-hourly dispatch model to examine resource commitment, dispatch and curtailment issues, demonstrate system operation feasibility and provide production cost benchmarking, would be appropriate. 11 For the HECO system, the simulated benefits of allowing the Kahe units 1, 2, 3 and 4 to cycle, as assumed in the final resource plans, are substantially overestimated.

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variable renewable generation on the utility systems. This results in several substantial inaccuracies.

First, the costs of operating the utility system are methodically underestimated. The analyses of the resource plans do not identify the necessary supporting ancillary needs, do not assume any proxy or assessment of costs to provide supporting ancillary needs and do not make any realistic assessment of resulting renewable energy curtailments. The spinning reserve margins assumed in the analyses are not realistic or sufficient proxies for the operating or other costs that would be necessary to accommodate the assumed amounts of variable renewable generation.

Second, the analysis and determination of the most economical and appropriate firm resources in the IRP Report does not sufficiently consider the ability of some firm resources to economically provide necessary ancillary services. The analyses do not account for the fact that the operation of the utility systems in the later parts of the planning period in the final resource plans would be substantially different from current operations. The current concept and role of baseload generation in the operation of the utility systems in the later parts of the planning period would be substantially eclipsed by the needs for utility generation cycling and ramping in a pronounced bimodal daily load pattern. In this context, the evaluation of the ability of utility generation resources to effectively and economically provide ancillary services should be a primary consideration in the determination of the most appropriate firm generation resources. As discussed above, the Strategist model does not accurately account for the nature of expected future system operation needs.

The analyses supporting the IRP Report should not be considered sufficient to support any conclusions that further investments in combustion turbine technologies (including conversion of the CT-1 unit on the HECO system to a combined cycle unit) are appropriate for the utility system generation needs in the later years of the planning period. Other resources characterized in the IRP would appear to be more appropriate for the expected system operations in the later years of the planning period. The internal combustion engine (ICE) resources, for example, provide superior quick-start, ramping and substantially more economical spinning reserve capabilities than combustion turbine units. These ancillary attributes have not been sufficiently or appropriately accounted for in the analyses supporting the resource plans, final resource plans and Action Plans. Prior to any determination of prudence for investments in combustion turbine technologies there should be a more thorough examination of the utility system needs, considering expected penetrations of renewable resources, and using appropriate modeling tools and assumptions.

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Feasibility and Cost of Interconnecting Extensive Distributed Generation

Large amounts of renewable distributed generation (DG) are presumed in each of the final resource plans. Although distribution-system-level constraints are known and acknowledged in the IRP Report and are currently being experienced on the HECO Companies’ systems with much lower levels of DG penetration, there is no evaluation or discussion regarding whether or how the presumed amounts of DG could be accommodated on the utility systems. The distribution system infrastructure costs of accommodating the presumed amounts of DG are not explicitly identified and are not included in the characterization of the final resource plans or Action Plans.

Feasibility of Siting Extensive Renewable Generation on the Island of Oahu

The IRP Report concludes that inter-island transmission of energy is not necessary to meet and exceed RPS requirements. This presumes that extensive amounts of renewable generation can be sited on the Island of Oahu. The IRP Report does not examine or evaluate associated siting or transmission restrictions, public acceptance issues or, generally, whether the installation of the presumed amounts of renewable resources on Oahu is feasible.

Without addressing the question of feasibility of “on-island” renewable resource implementation, it is not possible to reach a final determination regarding the question: Whether inter-island transmission is necessary to meet RPS requirements? The determination of feasibility is also necessary to address the more comprehensively framed question that is a principal subject for examination in the IRP process: Whether inter-island transmission investments are necessary or prudent to meet RPS requirements and best serve public interests?

The IRP Report suggests that decisions regarding whether an inter-island cable system is required or economic can be answered by “going to the market” by issuing one or more RFP’s. It is not clear, however, how this approach will answer necessary questions about the amount of renewable generation resources that are likely to become available over a long-term planning period. Responses to an RFP may certainly provide valuable and ultimately necessary information regarding the price and current availability of on-island renewable generation options. The amount of renewable generation that might be available over the long-term, considering projects that might be available in the future and perhaps ultimately supported by appropriate transmission system and infrastructure support, will not be determined by responses to an instant RFP.

The “take-it-to-the-market” approach may be an important part of obtaining valuable information on current resource availability and pricing, but it is not a substitute or alternative to long term resource planning. One purpose of resource planning is to frame subsequent resource acquisition decisions in the context of overall integrated system needs considered over a long term time frame. The objective is to ensure that later

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discrete incremental resource acquisition decisions can be made in a meaningful context. Is a proposed resource a necessary part of a well-considered integrated plan to meet system and customer needs?

Whether extensive amounts of renewable generation could be installed on Oahu is a problematic uncertainty. A reasonable approach for long range planning regarding this matter might include investigation of possible outcomes considering known constraints, assessment of probabilities (if possible), consideration of measures to mitigate constraints and evaluation of the relative costs and values of alternate outcomes.

An important consideration would be whether acquisition of projects in the near term might eclipse more economical opportunities that could develop with integrated inter-utility transmission. For example, HECO’s analysis of the economics of inter-island transmission is based on the amount of economically produced energy (or capacity) that can optimally be transferred between islands. If “space” on either utility grid is limited by sub-optimal projects, the overall economics of inter-connection of utility systems is affected. An incremental take-it-to-the-market approach may not produce an optimal long term result. Any such long-range determinations, however, require careful planning analysis and forward-looking estimates of the economics and feasibility of siting renewable generation projects. This is not easy, but it is long range planning.

The IRP Report is simply silent on how or whether any determination was explicitly made that sufficient cost-effective resources can be sited on the Island of Oahu, in making the determination that Hawaii can meet and exceed RPS requirements without inter-island transmission of energy.

OBSERVATIONS REGARDING THE IRP PROCESS

Framing Breadth and Purpose

In the most general terms, there seems to be a difference between how the HECO Companies interpreted and implemented the purpose of the IRP process and a broader purpose and scope of issues and questions framed by the Commission in its Order Identifying Issues and Questions. The issues and questions identified by the Commission encompass the development of information to inform several important over-arching policy questions, including: the affordability of utility rates; the costs of meeting the State Renewable Portfolio Standards (RPS) and Energy Efficiency Portfolio Standards (EEPS); the prudence of substantial investments in transmission and fuel supply infrastructure, assessment of the need and economics of possible inter-island transmission systems, and analysis of investments and alternatives to facilitate the incorporation of variable renewable generation technologies. The scope of the HECO Companies’ analyses seems to be more narrowly focused within the bounds of a work plan and approach using a specific scenario planning approach and a specific resource analysis model (Strategist) to analyze resource planning issues.

The HECO Companies have been resistant to supplementing the work plan and approach that the Companies originally presented at the very beginning of the planning process

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prior to the identification of the Principal Issues. Early in the process it was pointed out to the Companies that the particular scenario planning process approach adopted by the Companies was time consuming and added problematic complexity. It was also stressed that the Strategist model would not cover the full scope of the necessary analysis of the Principal Issues and that other types of analysis would be necessary. At an Advisory Group technical session on October 30, 2012, it was agreed (but only after several hours of encouragement and argument by the IE and advisory group) that the Companies would perform some basic limited analysis of energy efficiency implementation and would do some supplementary studies in addition to and parallel with the Strategist model.

Beginning with the first presentation of the resource plan analyses at the April 2, 2013 Advisory Group meeting and with the final filing of the IRP report on June 28, 2013, it became clear that the scope of analyses remains primarily limited to the scope of what issues can be addressed using the Strategist model. The hopefully anticipated added depth and scope of the expected supplementary studies was not realized, and several of the Principal Issues remain unaddressed.

IRP Process Schedule

The IRP process schedule ran substantially behind schedule, particularly beginning with the analyses of the resource plans.

In the original IRP process schedule filed with the Commission by the HECO Companies on May 30, 2012, the initial presentation of preliminary results of the resource plan analysis was scheduled for a January 2013 Advisory Group meeting. A second Advisory Group meeting was scheduled for March 2013 to review analysis results and obtain Advisory Group feedback. At the encouragement of the IE, an additional Advisory Group meeting date was scheduled for February 2013 to allow additional opportunity for Advisory Group review and consideration of Advisory Group input.

In January 2013, the HECO Companies reported to the IE that the resource analyses had not progressed sufficiently to provide useful information. Consequently, the January 2013 Advisory Group meeting was cancelled. In February 2013 it was again reported that preliminary results of the resource plan analyses were not available for presentation. The agenda of the February 25, 2013 Advisory Group meeting was adjusted to include only a brief report by the HECO Companies regarding the amended schedule and the status of progress on the resource plan analyses. The bulk of the February 2013 Advisory Group meeting was dedicated to discussion regarding improving the characterization of qualitative metrics. In March 2013 it was again determined that preliminary results of the resource analyses would not be ready to present by the time of the March 2013 Advisory Group meeting. The Advisory Group meeting was postponed and rescheduled on April 2, 2013.

At the April 2, 2013 Advisory Group meeting the preliminary results of resource analyses were first presented in “raw” form without explanatory or interpretive documentation. Additional resource plan analyses were presented by the Companies at a technical

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session on April 8, 2013. An additional technical session was held on April 22, 2013 to provide explanation and clarifications regarding the analyses.

At the Advisory Group meeting on May 1, 2013 the HECO Companies provided a projected slide presentation explaining how the resource analyses addressed the identified Principal Issues. Several more-recent resource plan analyses were presented in the form of projected slides.

The Companies first presented material regarding the Action Plans at the Advisory Group meeting on May 30, 2013 in the form of presentation slides that explained a conceptual outline of the draft Action Plans. The Action Plans and the final resource plans (including the preferred plan, contingency plan, parallel plan and secondary plan) were first provided in the final IRP Report filed on June 28, 2013.

As a result of the delayed schedule, the three-month period originally scheduled for review of the analyses of resource plans and iterative consideration of Advisory Group comments was compressed into a few weeks late in the IRP process. There was no opportunity for Advisory Group input regarding the determination of the final resource plans or the formulation of the Action Plans. Perhaps also because of the delayed schedule, the HECO Companies did not determine, rank or prioritize final resource plans based on any determined with input from the Advisory Group as required by the Framework. Clearly the compressed schedule at the end of the IRP process did not allow for adequate consideration or response to Advisory Group comments.

The amount of analysis, progress and work performed by the HECO Companies in the final weeks of the IRP process was impressive. Reviewing the resulting amount of new previously un-presented material in the IRP Report, however, was a challenge for the IE and the Advisory Group. There has been very limited opportunity for clarifications regarding the substantial volume of new material presented in the IRP Report.

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COMPLIANCE WITH SPECIFIC FRAMEWORK PROVISIONS

The Framework includes several sections and provisions that are not directly relevant to evaluating the IRP process, Action Plans or the IRP Report. A subset of the Framework provisions is listed below with several sections and some language removed that either do not specify certifiable standards or are not do not otherwise pertain to the Final Certification. Framework provisions are in bold italic type.

I. Definitions

The definitions in the Framework are being applied consistently in the IRP process.

II. Goal and Governing Principles

B. Governing Principles (Statements of Policy)

1. The development of Scenarios, Resource Plans and the Action Plan is the responsibility of each utility. The utility shall develop Resource Plans and an Action Plan in consultation with Advisory Group(s), the public, and the Independent Entity, subject to the oversight and approval of the Commission.

The HECO Companies developed Scenarios and Resource Plans “in consultation” with the Advisory Group with oversight by the IE. The Action Plans, however, were first presented in the IRP Report filed on June 28, 2013 and were not developed with consultation or any other form of input from the Advisory Group, the public or the IE.

The IRP process and IRP Report are not in full compliance with this Framework provision.

2. Resource Plans and the Action Plan shall comport with applicable federal, state, and county laws, formally adopted state and county plans, and other applicable administrative and regulatory requirements.

As far as yet determined, the Action Plans appear to comport with this provision in the sense that there is no explicit intent to not comply with the noted applicable laws, plans or requirements.

Several resource plans are analyzed that represent strategies that are not compliant with State Renewable Portfolio Standards (RPS), Energy Efficiency Portfolio Standards (EEPS), or anticipated air quality regulations. These non-compliant resource plans are formulated for purposes of analysis, not implementation.

The HECO Companies have chosen the “Stuck in the Middle” scenario as a primary basis for characterizing and presenting several attributes of its Action Plans. The Stuck in the Middle scenario presumes that EEPS standards will not be met (assuming 75% compliance). It does not seem to be the intent of the Action Plans to fail to meet the EEPS requirements, but the final resource plans (preferred plans, contingency plans, parallel plans and secondary plans) for all of the utilities are characterized as failing to meet the EEPS requirements.

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3. Resource Plans and the Action Plan shall be developed upon consideration and analyses of the short and long-term costs, effectiveness, benefits, and risks of all appropriate, available, and feasible resource options and the adequacy and reliability of energy services.

The scope of resource options considered by the HECO Companies does not include “all appropriate, available, and feasible resource options”. Several resource options are identified in the Framework, Principal Issues and by advisory group members that are not characterized by the companies for analysis and that could be considered appropriate, available and feasible. This is discussed in more detail below in the context of more-specific language in the Framework at section V.C.6.

The IRP Report is not in compliance with this Framework provision.

4. Resource Plans and the Action Plan shall consider the plans' impacts on the utility's customers, the environment, culture, community lifestyles, the State's economy, and society.

The IRP Report identifies a spectrum of potential impacts on the utilities’ customers, the environment, culture, community lifestyles, the State’s economy and society.12 It is not clear, however, whether, how or to what extent most of these impacts were considered in the analyses of resource plans, selection of the final plans (preferred, contingency, parallel and secondary plans) or the formulation of the Action Plans. The IRP Report includes substantial analysis and some discussion of some impacts, such as costs and “fairness”, but there is no presentation, description or discussion in the IRP Report regarding how most of the identified impacts addressed by this governing principle were considered in the selection of the final plans or formulation of the Action Plans. The Action Plans do not include elements to address most of the identified impacts.

5. Resource Plans and the Action Plan shall consider the utility's financial integrity, available sources of capital, ownership structure, size, and physical capability.

The resource plans and Action Plans take into account the utility characteristics identified in this governing principle.

6. Integrated resource planning shall, where appropriate and applicable, consider governmentally established energy policies in effect at that time.

The IRP process is compliant with this governing principle.

7. Integrated resource planning shall be an open and transparent public process that provides opportunities for public participation and feedback and creates broad-based awareness of the complex and sometimes

12 See in particular Chapter 3: Objectives and Metrics and Chapter 17: Advisory Group Qualitative Metrics Considerations.

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conflicting objectives and issues the utility and the Commission must resolve.

The IRP process is being conducted as an open process that is consistent with this principal. Consistent with the Framework provisions, an advisory group has been established with meetings that are open to attendance by the general public with oversight by the IE. Provisions have been made to encourage and document comments. The HECO Companies held two series of public meetings including meetings on each of the affected islands.

In the later stages of the IRP process, due at least in part to time constraints resulting from the utilities getting behind schedule, the development of the final resource plans and Action Plan were less open and transparent than the earlier phases of the process and there was very limited opportunity for public participation, awareness and feedback.

8. Integrated resource planning shall be focused on planning analyses across a range of Scenarios to guide the utility in developing a reasonable and prudent Action Plan.

Scenarios were developed and used for planning analyses consistent with this principle.

9. Integrated resource planning shall consider generation, transmission and distribution infrastructure requirements and associate[d] capital and operating costs, including operational changes, grid upgrades, system capacity additions or replacements, and technological advances.

The IRP process and resource planning analyses included the considerations listed in this principle with the exception that: some distribution infrastructure requirements and some necessary operational changes (and associated capital and operating costs) were not considered in the resource plan analyses supporting the Action Plans.

III. Roles

The Framework identifies roles and, in some cases, specific duties in several sections pertaining to the Commission, Utility, Independent Entity, Consumer Advocate, Public Benefit Fee Administrator, Advisory Group and the Public. Except as noted with regard to other Framework requirements, the process was conducted consistent with the Framework provisions in this section.

IV. The Planning Process

A. Major Steps

B. The Planning Cycle

C. The Docket

6. If time permits, the utility may conduct public meetings or provide public forums at various phases of its integrated resource planning process for the purpose of obtaining the input of those in the public who are not or may not

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be represented by a member of, or the interests of a member of, the Advisory Group.

The HECO Companies were compliant with this non-mandatory provision . The HECO Companies held two series of public meetings with meetings on each of the affected islands (and three meetings on the Island of Hawaii) in each series.

7. Unless extended for excusable neglect by Commission order, the utility shall file its Integrated Resource Planning Report and associated Action Plan within one year after the selection of the Advisory Group(s) by the Commission. To encourage public awareness of the filing of the utility's proposed Action Plan, a copy of the Action Plan and the supporting analyses shall be made available for public review at the Commission's office and to the extent applicable, at the office of the Commission's representative in the county serviced by the utility. The utility shall also post electronic copies of the Action Plan and the supporting analyses online on its website. The utility shall note the availability of the documents for public review at these locations in its published notice. During the pendency of the docket, the utility shall make copies of the executive summary of the Action Plan available to the general public, upon request, at no cost, except the cost of duplication.

The HECO Companies filed the IRP Report within one year after the selection of the Advisory Group by the Commission.

8. Within seven (7) days of the filing of its Integrated Resource Planning Report, the utility shall cause to be published in a newspaper of general circulation in the State a notice informing the general public that the utility has filed its Integrated Resource Planning Report and proposed Action Plan for the Commission's approval.

The HECO Companies published the required notice on July 7, 2013 (nine days after the filing of its IRP Report on June 28, 2013).

D. Submissions to the Commission

1. The utility shall file its Integrated Resource Planning Report as follows.

a. The utility shall include in its filing a full and detailed description of the key phases of its integrated resource planning process. The utility shall fully describe, as applicable:

(1) The planning objectives and principal issues that have been used and considered to provide guidance or be the basis for decisions made in the integrated resource planning process.

The HECO Companies’ IRP Report is compliant with this provision.

(2) The Scenarios developed to reflect possible futures dealing with uncertain circumstances and risks facing the utility and its

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customers, which were used as the basis for the Resource Plans analyzed, including the rationale used to select and formulate the various Scenarios.

The HECO Companies’ IRP Report is compliant with this provision.

(3) The assumptions and the basis of the assumptions underlying the Scenarios and Resource Plans, and the key drivers of uncertainty that may have a significant impact on the assumptions.

The HECO Companies’ IRP Report is compliant with this provision.

(4) The risks, trends, expected events (if any), and uncertainties associated with the Scenarios and Resource Plans.

The HECO Companies’ IRP Report is only partially compliant with this provision. Generally, the IRP Report does not consistently identify and describe uncertainties in assumptions and weaknesses in analytical methods. This includes some major uncertainties and many details, only some of which are identified in this Final Certification. As noted elsewhere in this Final Certification, for example, several crucial fundamental uncertainties regarding the resource plans have not been identified or described. These include uncertainties regarding whether and how the extensive amounts of renewable resources assumed in the final resource plans can be accommodated reliably on each utility system and whether the amount of renewable resources assumed on the HECO system can feasibly be sited on the Island of Oahu.

(5) The forecasts made and any assumptions underlying the forecasts.

The HECO Companies’ IRP Report is compliant with this provision.

(6) The resource options or mix of resource options considered in the development of the Resource Plans for the Scenarios.

The HECO Companies’ IRP Report is only partially compliant with this provision. See discussion regarding provision V.C.6, below.

(7) The needs of the utility system, such as identification of supply-side or transmission additions. The proposed procurement method for resources should be identified.

The HECO Companies’ IRP Report is only partially compliant with this provision. See discussion regarding provision IV.D.1.a.(4) above. The needs and of the utility system to accommodate the presumed amount of variable renewable generation in the final resource plans is not identified or fully discussed.

(8) A detailed description of the analysis or analyses upon which the Resource Plans and Action Plan are based, the data, the source of the data, and the methodologies used, which may

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include without limitation: revenue requirement calculations, estimates of the potential impact of the plans on rates, bills and customer energy use, external costs, identification of the risks and benefits, renewable portfolio standards and energy efficiency portfolio standards compliance, reliability impacts, and sensitivity analysis.

The HECO Companies’ IRP Report is only partially compliant with this provision. See discussion regarding provision IV.D.1.(4) above. Sensitivity analyses appropriate to address many uncertainties have not been provided or discussed.

b. The utility shall include in its filing a full and detailed description of the Action Plan, which shall fully describe, among other things:

(1) An implementation schedule that shows the resources, programs, actions, or phases of resources, programs, or actions to be implemented in each of the five (5) years of the Action Plan.

The IRP Report is generally compliant with this provision. As noted in the final comments provided by the Consumer Advocate, the level of granularity of detail provided in the Action Plan is not consistent between utilities and within the Action Plans of each utility. The costs and scheduling of some Action Plan elements are identified in much greater detail than other elements. As a general matter, the nature and scope of any approval of an Action Plan by the Commission should be clarified including clarification regarding the nature of approval of details provided or omitted from the Action Plans.

(2) The estimated expenditures required by the utility to support implementation of each option or phase of such option.

See discussion of provision IV.D.1.b(1) immediately above.

(3) The steps anticipated in order to realize and implement the supply-side and demand-side resources included in the schedule.

See discussion of provision IV.D.1.b(1) immediately above.

(4) How the Action Plan was developed based on the Resource Plans and Scenarios analyzed.

One substantial shortcoming in the HECO Companies’ IRP process is ambiguity regarding how the Action Plans were developed based on the analyses of the resource plans or planning objectives developed and presented earlier in the process.

The Action Plans were first described, in general prospective terms, in presentation slides at a meeting of the Advisory Group on May 30, 2013. The Action Plans

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were first disclosed in the filing of the IRP Report on June, 28, 2013. The IRP Report includes some description of how some aspects of the Action Plans were developed and some deductions can be inferred from the text and analysis details. Several important ambiguities remain that are not described.

For example, the Action Plans are formulated and organized around four objectives that were first presented at the May 30, 2013 Advisory Group meeting.13 It is not clear and it was not explained how these four principal objectives were related to or derived from the objectives and metrics established earlier in the process with input from the Advisory Group.14 With the exception of some isolated citations to the planning objectives regarding specific details, the IRP Report does not discuss how the Action Plans were derived using the planning objectives identified earlier in the IRP process.

Each of the Action Plans is founded upon four final resource plans, including a preferred plan, a contingency plan, a parallel plan and a secondary plan.15 There is no discussion of how these final resource plans were selected, whether or how the planning objectives were used, whether any methodical process was used for determination, or what each of the plan designations means.16

c. The submissions should be simply and clearly written and, to the extent feasible and practicable, in non-technical language. Charts, graphs, and other visual devices may be utilized to aid in understanding the Scenarios, Resource Plans, the Action Plan, and the analyses made by the utility. The utility shall provide an executive summary of the Scenarios, Resource Plans, analyses, and Action Plan, and shall appropriately index its submissions.

The HECO Companies’ IRP Report is compliant with this provision.

13 The four objectives are the same for each Company: “Lower customer bills”, “Clean energy future”, “Modernized grid” and “Fairness.” 14 The Framework provides that the utility shall identify planning objectives at the outset of the IRP process with input from the Advisory Group. (Framework V.C.4.a at page 17). The planning objectives are to be used for decision-making throughout the IRP process. (Framework V.C.4.b). To the extent practicable the IRP Report is required to summarize how the planning objectives are used throughout the process. (Framework V.C.4.d). 15 The MECO Action Plan includes four final resource plans for each of the three island divisions. 16 In addition to requirements for a full description provided in this provision, the Framework includes a process step “Determination of Resource Plans” that requires prioritization of the final resource plans based on criteria established with the advice of the Advisory Group. (Framework V.C.9 at page 20). As discussed below regarding that provision, this step was not executed consistent with this Framework requirement in the HECO Companies’ IRP process.

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V. Planning Guidelines

A. Purpose of the Planning Guidelines

B. General Planning Guidelines.

1. The implementation of planning is the responsibility of each utility provided that each utility shall:

a. comply with the planning guidelines and other provisions identified in this framework and any specific orders by the Commission; and

Compliance with this very general provision is the subject of comments regarding compliance with the other more-specific Framework provisions and Principal Issues.

b. consider the input, comments and suggestions provided by Advisory Group members and the general public, to the extent feasible.

The HECO Companies have asserted at several stages of the IRP process that all of the input from the Advisory Group and the public has been considered. It is clear that some Advisory Group input has resulted in modifications to the planning process, particularly modifications to the companies’ stated planning objectives and metrics.

Several opportunities to respond to Advisory Group comments were encouraged by the IE. In one instance, the IE offered Advisory Group members a broad opportunity to request responses regarding members’ comments in writing and the utility voluntarily provided written responses. At most Advisory Group meetings, members have had an opportunity to request responses regarding the Advisory Group comments. Outside of these responses to specific requests, the HECO Companies have not volunteered or provided responses to most of the comments from Advisory Group members.

The HECO Companies may have “considered’’ the input of the Advisory Group in a minimal and perfunctory meaning of the term. As a generalization based on observations over the duration of the IRP process, however, it would be also be accurate to state that the Companies have ultimately ignored much of the input, comments and suggestions provided by the Advisory Group members. Advisory group comments at meetings often appeared to be greeted with dismissive argument, without acknowledgement of the comments’ merit or substance.

The term “consider”, used as a standard in this Framework provision, could be interpreted with varying levels of required rigor. In the extreme, if a utility employee reads a comment by an Advisory Group member and merely ponders the comment for six seconds, has the utility met its burden to consider the comment? Does the utility have any burden to demonstrate in some discernable way that it has considered the comments by the Advisory Group? Does a general assertion that the utility has considered all advisory group comments suffice to meet the companies’ burden to demonstrate compliance with the Framework provision?

The term “consider” is used as a standard in several Framework provisions. The appropriate meaning can be derived, in some instances, by context. In a Framework

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provision that pertains to analyses, for example, the term should be interpreted to require analysis of anything that is required to be considered. The interpretation in this case, regarding consideration of advisory group input, is more ambiguous from context but falls, in accordance with specific Framework provisions, largely to the discretion of the IE. The IE is given several “gatekeeper” duties in the Framework including determining what issues and concerns identified by the Advisory Group must be addressed by the utility [Framework V.B.2.b], ensuring that the utility provides consideration of input, guidance and recommendations from Advisory Group members [Framework III.C.2.c.(3)] and reporting to the Commission any failure by the utility to provide necessary planning information to the Advisory Group [Framework III.C.2.b.(5)].

The IE was deliberately permissive throughout the IRP process and has not formally required the HECO Companies to respond to most comments submitted by the Advisory Group members. One important consideration, regarding what is “feasible”, is the amount of time required to provide extensive responses to Advisory Group input in light of the rigorous schedule and work load carried by the utilities in the IRP process. The utilities have been substantially behind schedule throughout the third and fourth quarters of the process.

The HECO Companies could certainly have made a more diligent effort to actively and more comprehensively respond to Advisory Group input. Advisory Group members who take the time and effort to provide written comments deserve to know whether their comments have been understood and, to the extent any suggestions are made and not followed, whether the suggestions are simply being ignored or whether the companies disagree with the suggestions. This criterion was often not met. Several Advisory Group members have provided substantial suggestions that have not received any answer or response.

In response to an inquiry by the IE (dated May 6, 2013) regarding a specific list of Advisory Group comments, the HECO Companies provided a matrix of comments and responses in Appendix D of the IRP Report. The Companies responses in this matrix are cursory and not constructively responsive.

The HECO Companies’ compliance with this Framework provision was only minimal.

2. Analysis supporting the Integrated Resource Planning Report shall:

a. provide meaningful support for the reasonableness of the Action Plan; and

Several concerns regarding the merits of the analyses and support for the reasonableness of the Action Plans are identified in this Final Certification. These concerns are discussed in the context of more specific Framework requirements and in discussion further below regarding whether the Principal Issues have been addressed in the IRP Report. In sum, this Final Certification asserts that the analyses supporting the IRP Report do not provide meaningful support for the reasonableness of the Action Plans.

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Ultimately, this provision provides a fundamental standard for evaluating the IRP Report and Action Plans in following proceedings that provide the opportunity for more thorough discovery and more careful examination than is practical in the preparation of this Final Certification.

b. address those issues and concerns identified by the Advisory Group(s) and the general public that the Independent Entity determines have merit, to the extent feasible.

The IE has explicitly identified several issues and concerns in several documents provided in the IRP process.17 These documents include several issues and concerns identified by Advisory Group members. The IE has not provided any formal statement directing the HECO Companies to address specific issues or concerns explicitly citing this provision of the Framework.

The HECO Companies have addressed at least some (but by no means all) of the concerns identified by the Advisory Group members and the IE on a voluntary and cooperative basis, including providing responses to several requests for information by the IE and several substantial changes to planned analysis methods based on discussions at Advisory Group meetings.

Discussion of the extent to which the analyses supporting the IRP Report address the issues identified by the Advisory Group members and the IE is provided throughout this Final Certification in the individual sections that specifically address specific Framework requirements and Principal Issues.

C. Specific Planning Guidelines

The process for developing utility Scenarios, Resource Plans and Action Plan, to the extent applicable, shall include the following.

1. Identification of principal issues.

The identification of Principal Issues was completed with the issuance of a final draft “chapter” titled Principal Issues, dated October 19, 2012, most recently provided as Chapter 4 of the IRP Report.

The Commission’s Order Identifying Issues and Questions provided a list of issues that must, at a minimum, be addressed in the IRP process. The issues identified in the Commission’s Order were incorporated in the companies’ Principal Issues with reformatting and with some rephrasing but without intentional substantive change. No additional Principal Issues were added beyond those identified by the Commission. In order to avoid extensive concern about the precise language in the final draft chapter, it

17 In particular, the First Quarterly Report on the Status and Evaluation of the HECO/MECO/HELCO IRP Process, dated October 22, 2012; the Certification Of Phases I & II Of the HECO/MECO/HELCO IRP Process, dated December 31, 2012; and IE Interim IRP Process Status Report and Statement of Concerns, dated May 10, 2013.

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was clarified and agreed that regardless of any specific differences between the language in the Commission’s Order and the final draft chapter, the requirements identified in the Commission’s Order will apply.

The identification of Principal Issues is consistent with the Framework provision.

2. Characterization of existing system and conditions. The utility should provide a description of the existing utility system, any operational issues and existing constraints.

The IRP Report includes a description of its existing systems in Chapter 7.

Chapter 16 of the IRP Report includes a brief discussion of operational constraints regarding interconnection of distributed generation resources, states that (unidentified) system upgrades will be implemented (at interconnecting customer expense).

The IRP Report does not include a description of the operational issues or system constraints associated with the extensive amount of distributed and/or variable renewable generation resources assumed in the final resource plans and Action Plans.

3. Identification of uncertainties and factors that affect utility planning.

Uncertainties and factors that affect utility planning pertaining to forecasts and scenarios were discussed and identified as a major subject at the Scenario Planning Workshop, August 20, 21 and 24, 2012. A list of key uncertainties pertaining to the forecasts and scenarios is provided in Chapter 6 of the IRP Report at page 6-2. A more substantial discussion of the identification of uncertainties and factors pertaining to the forecasts and scenarios was provided in a draft “chapter” provided by the HECO Companies titled: “Summary of the IRP Scenario Planning Workshop” (file dated September 28, 2012).18

Uncertainties and factors that affect utility planning have been identified for the forecasts and scenario assumptions. Uncertainties regarding several other aspects of utility planning, including many aspects of the characterization of resources, programs and measures, have not been explicitly identified and discussed.

The analyses of resource plans explicitly address several key uncertainties. The use of four final resource plans as the basis for formulation of the Action Plans is specifically intended to address several specific fundamental uncertainties.

Generally, the IRP Report does not consistently identify and describe uncertainties in assumptions and weaknesses in analytical methods. This includes some major uncertainties and many details, only some of which are identified in this Final Certification. As noted elsewhere in this Final Certification, for example, several crucial fundamental uncertainties regarding the resource plans have not been identified or described. These include uncertainties regarding whether and how the extensive amounts of renewable resources assumed in the final resource plans can be accommodated reliably on each

18 This document was provided for review by the Advisory Group after the September 24, 2012 Advisory Group meeting but was not provided in the IRP Report.

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utility system and whether the amount of renewable resources assumed on the HECO system can feasibly be sited on the Island of Oahu. These uncertainties are crucial to consider in an appropriate and meaningful interpretation of the analysis results but they are not discussed or highlighted in the IRP Report.

4. Identification of planning objectives.

a. At the outset of the planning process, the utility, with input from its Advisory Group, shall identify planning objectives that can be used to provide guidance and basis for decisions to be made throughout the planning process. The Commission may specify planning objectives or criteria to be considered in the planning process.

Planning objectives and measures of achievement have been identified with input from the Advisory Group. Several progressive drafts of proposed “Objectives and Metrics” were presented by the HECO Companies at Advisory Group meetings. Drafts were presented at IRP Advisory Group Meeting #1 (in matrix form), Meeting #2 (in the form of presentation slides), Meeting #4 (with revisions shown in text and matrix form in “chapter” format and presentation slides), and in “final” form at Meeting #6 and are provided in the IRP Report in Chapter 3.

In addition to the development of the objectives and metrics presented in Chapter 3, several Advisory Group members took initiative, with the assistance of the IE and the participation of the HECO Companies, to identify and characterize qualitative metrics, particularly to address the planning objectives regarding the environment and cultural and community values. Several Advisory Group meetings were dedicated, all or in large part, to developing qualitative metrics. The resulting qualitative metrics, as edited and formatted by the IE, are presented in Chapter 17 of the IRP Report.19

b. Objectives shall be used to provide guidance or the basis for decision-making throughout the integrated resource planning process.

Some of the objectives and metrics were used consistently and transparently throughout the process as a basis for evaluating resource plans. The analyses of resource plans made extensive use of several metrics including: total resource costs, RPS attainment percentage, and amount of renewable energy curtailment.

How most of the other objectives were used in decision-making in the IRP process is not clear and is not discussed in the IRP Report. It is not clear, generally, how the final resource plans were determined or, more specifically, whether and how the entire spectrum of objectives and measures of attainment were used in the analyses of resource plans and the formulation of the Action Plans.

19 Several Advisory Group members, including the Consumer Advocate, have made comments and suggestions to further amend and improve the qualitative metrics that have not (yet) been incorporated in the metrics presented in Chapter 17.

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c. The utility should provide measures of the achievement of the planning objectives to the extent practicable.

Summary charts showing the attainment of most of the quantitative metrics associated with the analyses of resource plans were presented in spreadsheet format accompanying presentations at several Advisory Group meetings in the month of April. Similar charts are provided for the final resource plans in Appendix P of the IRP Report.

d. To the extent practicable, the Integrated Resource Planning Report shall summarize how the planning objectives were used throughout the process.

See discussion regarding provision V.C.4.a immediately above.

5. Determination of planning Scenarios and forecasts.

a. Each utility, with input from its Advisory Group(s), shall develop a manageable range of Scenarios to guide utility planning.

b. The utility, with input from its Advisory Group(s), shall develop a range of forecasts of the necessary planning analysis parameters over the planning time frame. Forecasts may be developed for each planning Scenario, may be developed based on the assumptions associated with each Scenario or may be based on independent criteria as may be appropriate for and consistent with the planning analysis. Forecasts assumptions may be developed before or after Scenarios are developed.

Planning scenarios and forecasts for the planning process were determined with input from the Advisory Group. The process for the development of the scenarios and the resulting scenarios and forecasts are presented in Chapters 5 and 6 and Appendix E of the IRP Report.

Numerous concerns and many suggestions for amendments regarding the scenarios and forecasts were made by Advisory Group members. Although there seems to be obliging acceptance, there does not seem to be a great level of understanding or enthusiastic support of the identified scenarios or the choices of which forecasts and projected assumptions are associated with each of the scenarios.

One substantial issue and concern identified early in the IRP process and reiterated at several stages by the Consumer Advocate and the IE, is the need for a base case or reference planning scenario. The planning scenarios identified for the IRP process were deliberately generated with extreme high and low bounds regarding many individual planning assumptions and forecast projections. Probabilities are not assigned or considered with respect to the planning scenarios. Without some assumptions regarding any probabilities of occurrence and without any base case or reasonably likely planning scenario, determining the most economic resource alternatives or the alternatives with the most value is problematic. The HECO Companies have been opposed to identifying a base case scenario, arguing that this is not consistent with scenario planning principles.

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At the end of the IRP process, however, faced by a need to formulate, characterize and present the final resource plans and Action Plans, the HECO Companies adopted the “Stuck in the Middle” scenario to serve as a base case. This is problematic and remains an issue of concern.20

6. Identification of resource options.

a. The utility shall consider all appropriate, available, and feasible resource options in the development of the reasonable range of Scenarios and associated possible futures. Options may include: energy efficiency demand-side management programs; demand response and load management programs; distributed generation resources; smart grid measures; measures to mitigate constraints to the incorporation of as available or variable renewable generation resources; alternative renewable fuels; energy storage resources; alternative measures to provide ancillary services; and retirement or protective storage of existing generation units and related facilities.

According to a strict interpretation, the scope of resource options considered and analyzed in the HECO Companies’ IRP process does not include “all appropriate, available, and feasible resource options.” Several resource options, including resource options identified in previous IRP plans, options suggested by advisory group members, options identified in the Principal Issues and options listed in this Framework provision are not explicitly included in the resource options characterized for analysis. Currently omitted or excluded options include but are not limited to:

o any specifically identified energy efficiency measures or programs

o sea water air conditioning options

o customer-sited combined heat and power options

o hydrogen storage (explicitly identified in the Principal Issues)

o pumped hydroelectric storage

o demand response programs beyond those already planned by the HECO Companies,

o specific measures to mitigate constraints to the incorporation of as available or variable generation resources (other than battery storage options)

o alternative measures to provide ancillary services and retirement or protective storage of existing generation and related facilities

20 See, for example, final comments by the Consumer Advocate, dated July 17, 2103, (provided as an attachment to this Certification) at pages 4 – 6.

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o coal-fueled resources21

Some logical reasons were offered by the HECO Companies regarding why some of these options are not being explicitly included in the analyses but the options were not “screened out” based on the provisions in section d. below.

The IRP process was not conducted consistent with this Framework provision.

b. The utility shall include among the resource options to be considered in Section V.C.6.a. immediately above, the options currently in use, promoted, planned, or programmed for implementation by the utility.

The IRP process is appears to be conducted consistent with this issue.

c. The utility shall also include among the resource options to be considered in Section V. C. 6. a. above, the resource options that are or may be supplied by persons or entities other than the utility.

Customer-sited distributed generation options were not considered in the analyses except as components of the forecasted demand projections in the characterization of the scenarios. These resource options are not being characterized in accordance with Sections V.C.6.e. or V.C.6.f or V.C.6.g below.22 No costs, benefits, underlying assumptions, or uncertainties have been identified.

The IRP process was not conducted consistent with this Framework provision.

d. The utility shall, upon review of the range of Scenarios to be analyzed, screen out those options that are not reasonably appropriate to Hawaii, are not reasonably expected to be available to address the identified range of Scenarios, or are clearly infeasible. The utility, with the input of the Advisory Group(s), may establish such other criteria for screening out clearly infeasible options.

The utility has not conducted any screening process that is discernable or consistent with this Framework provision. No screening criteria have been discussed or established with input from the Advisory Group.

The IRP process was not conducted consistent with this Framework provision.

21 Coal resources were discussed briefly as a potential “missing” resource option at one Advisory Group meeting (in the context of omission of any projection of coal fuel prices) but there did not seem to be any support stated by any Advisory Group members in attendance to include this option in the IRP analyses. Although this option was not “screened out” by any methodical process, its omission was supported by at least some minimal discussion by the Advisory Group. 22 An Oahu small rooftop solar photovoltaic resource option is characterized as a utility-owned resource in the Supply-side Resource Unit Information Forms, IRP 2013, dated October 15, 2012, provided most recently as part of Attachment 6 of the Notice of Completion. Much of the information regarding this utility-owned resource could be used as a basis to characterize customer-sited distributed generation options.

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e. The utility shall identify the assumptions underlying any resource option or the cost or benefit of any option or any analysis performed.

f. The utility shall also identify risks and uncertainties associated with resource options.

g. The utility shall further identify any technological limitations, infrastructural constraints, legal and governmental policies or requirements, and other constraints that impact any option or the utility's analysis.

The underlying assumptions, uncertainties, and other constraints regarding the extensive magnitude of variable generation resources presumed to be available for the Oahu utility system and the infrastructural constraints regarding the large penetrations of variable renewable generation on all of the utility systems were not identified or discussed in the IRP Report.

h. The utility shall consider measures, strategies, and programs to address limitations and constraints that may negatively impact its ability to achieve the objectives identified.

Several measures have been identified to address some limitations and constraints consistent with this provision. Battery storage options, for example, are being considered to address infrastructure constraints that negatively impact the ability of the utility systems to accommodate variable renewable resources. There is no meaningful consideration, however, of the magnitude or feasibility of necessary measures, strategies or programs to accommodate the large penetrations of variable renewable generation resources presumed in the final resource plans upon which the Action Plans are based.

7. Models.

a. The utility may utilize any technically or commercially reasonable model or models in performing the technical analyses required to develop Resource Plans for the Scenarios developed.

b. Each model used shall be fully described and documented.

A basic explanation of the Strategist model used by the HECO Companies for the analyses of the resource plans and final resource plans is provided in Appendix M of the IRP Report.

c. The Independent Entity, an Advisory Group member representing that group (as determined by the Independent Entity) and the Commission or its designee may review a utility's modeling program, documentation and input, output, and diagnostic files, provided that such person (i) certifies in writing that it is not a competitor of the utility or the company providing the modeling program; and (ii) executes any reasonable, appropriate confidentiality or other agreements required by the utility or the model vendor.

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The IE appointed an Advisory Group member to represent the Advisory Group consistent with this provision. The Advisory Group representative along with the IE, Commission staff and Consumer Advocate staff were allowed access to input, output and diagnostic files used in the analysis of the resource plans and final resource plans.

8. Analyses.

a. The utility, with input from its Advisory Group(s), shall develop Scenarios to guide the utility's integrated resource planning process. Such Scenarios shall reflect possible futures dealing with uncertain circumstances and risks facing the utility, other stakeholders, and the utility's customers.

The HECO Companies developed scenarios and forecasts generally consistent with this provision. See discussion above regarding provision V.C.5.

b. The utility, with input from its Advisory Group(s), shall develop a reasonable scope and number of Resource Plans for the Scenarios developed. One or more Resource Plans may be developed for each Scenario. A sufficient number of Resource Plans will be developed and analyzed to ensure that the results of the utility planning process are meaningful and will address the scope of the identified issues. However, the number and scope of Resource Plans developed and analyzed will consider the limitations of utility planning resources and the planning process schedule.

The HECO Companies developed an extensive number of resource plans included resource plans developed for the identified planning scenarios. The number of resource plans developed was not an issue in the IRP process. Whether the Principal Issues are meaningfully addressed is discussed regarding other more specific provisions of this Final Certification.

c. The utility shall analyze all options in the Resource Plans on a consistent and comparable basis. The utility may use any reasonable and appropriate means to assure that such equal consideration is given.

The resource options in the resource plans were examined on a consistent and comparable basis.

d. In addition to addressing risks and planning uncertainties through consideration of Scenarios, the utility may utilize sensitivity analysis to determine the extent to which uncertainties affect analysis results and conclusions.

The HECO Companies did not make extensive use of sensitivity analyses to address uncertainties. Several outstanding uncertainties could and should be addressed by

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further analysis, including sensitivity of conclusions regarding fuel and resource pricing and availability, potential amounts of customer system exit, costs and regulatory allowances regarding timing of compliance with air quality regulations, etc.

e. Notwithstanding the above, the utility shall compare the options on a present value basis. For this purpose, the utility shall discount the estimated annual costs (and benefits, as appropriate) using reasonable and appropriate discount rates, assumptions and procedures. The utility shall fully explain the rationale for its choice of discount rates, assumptions and procedures.

The analyses presented in the IRP Report make extensive use of discounting and presentation of costs on a net present value basis. There is no discussion or explanation, however, of the basis or rationale for the choice of discount rates. The discount rates used in the analyses were not questioned and were not an issue or concern raised during the IRP process.

Several related assumptions regarding escalation of future prices for construction of generation resources were questioned and are matters of substantial concern. See, for example, the discussion of renewable generation cost escalation assumptions in the discussion of Principal Issue 14. Inter-Island and Inter-Utility System Transmission.

f. The analyses shall identify the resources to be acquired through available procurement mechanisms. The analyses shall consider and identify, to the extent feasible, those resources which the utility proposes to acquire through its available resource procurement mechanisms, including any competitive bidding, feed-in tariff, bilateral contract negotiation, net energy metering, demand response tariffs, or other approved, applicable, or proposed procurement mechanisms.

The HECO Companies identify the procurement mechanisms for resources included in the Action Plans in Chapters 18: Competitive Bidding and Resource Acquisition, Chapter 19: Action Plans and the Action Plans for the HECO, HELCO and MECO utilities in Chapters 20, 21 and 22 respectively.

g. The utility shall conduct planning analyses to determine, evaluate, and compare the merits of the resources, programs, and actions in the Resource Plans.

The HECO Companies’ IRP process and IRP Report are compliant with this provision.

h. In its integrated resource planning process, the utility may use information, data, analyses and results from relevant planning studies conducted by the industry, utility, or others, as part of other regulatory dockets or general planning processes. The analyses conducted as part of the integrated resource planning process may in turn be used in other general planning processes or studies.

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The HECO Companies’ IRP process and IRP Report are compliant with this expository provision.

9. Determination of Resource Plans.

The utility shall rank or descriptively prioritize the final Resource Plans (i.e. , preferred plan, secondary plan, parallel plan, contingency plan) based upon such criteria as it may establish with the advice of its Advisory Group.

The HECO Companies have identified four final resource plans, including a preferred plan, contingency plan, parallel plan and a secondary plan, for each of the five utility systems. The IRP Report does not refer to, explain or discuss any ranking or prioritization of the final resource plans. No criteria or explanations are provided regarding the selection of the final resource plans. There was no discussion with or advice provided by the Advisory Group regarding criteria, definitions or the meaning of designation, ranking or prioritization of the final resource plans.

The IRP process and IRP Report are not compliant with this provision.

10. Determination of Action Plan.

a. Based on its analyses, the utility shall develop its Action Plan, which shall identify those resource options or the mix of resource options or specific actions that the utility anticipates will enable it to reasonably attain the planning objectives in light of the uncertainty regarding the planning Scenarios.

The HECO Companies developed Action Plans for each utility. It is not clear or explained how the formulation of the Action Plans was based on the analyses. The Action Plans provide some explanation of how some of the specific actions will enable attainment of some planning objectives. There is no comprehensive or methodical explanation regarding how each of the specific actions will enable attainment of all of the planning objectives.

Only one or, in some cases, two of the planning scenarios are used in characterizing the development of the Action Plans. The IRP Report does not sufficiently explain the need or reasons for the use of a limited set of the planning scenarios or the basis for selecting the specific scenarios for the development and characterization of the Action Plans.23

b. The utility shall review the Resource Plans to identify common themes, resources, programs, and actions that demonstrate robust value to balance costs and risks, and provide the greatest value and

23 Several shortcomings of using the “Stuck in the Middle” scenario (or any single one of the identified planning scenarios) as a base or reference case have been noted by the IE and the Consumer Advocate in concerns noted throughout the IRP process. The HECO Companies have been opposed to developing and utilizing a base case or reference case scenario.

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flexibility across as many of the evaluated Scenarios and Resource Plans as reasonably practicable.

The IRP Report does not provide explanation or discussion regarding whether or how the resource plans were reviewed to demonstrate robust value or balance costs and risks. There is no analysis or discussion of whether or how the final resource plans or Action Plan elements provide the greatest value or flexibility across any or as many of the scenarios or resource plans as practicable.

The IRP process and Action Plans are not in compliance with this provision.

c. The Action Plan may contain elements of resources, programs, and actions from one or more of the identified Resource Plans. The proposed Action Plan may not be the least expensive plan and may include resource options and contingency measures to reasonably address the uncertain future circumstances identified in the various planning Scenarios.

The Action Plans are compliant with this provision.

d. The Action Plan shall identify the intended means of procurement or implementation of each resource, action, or program included in the Action Plan. The Action Plan shall specify which resources are proposed to be exempt or subject to waivers from requirements of any applicable competitive bidding framework or other resource acquisition mechanism approved by the Commission.

The IRP Report does not provide a concise statement, list or table showing what exemptions will be asserted or what waivers will be requested. This information is not all available in the Action Plans. The HECO Companies have stated, in response to inquiry by the IE, that which resources are proposed to be exempt or subject to waivers from requirements of competitive bidding provisions can be ascertained from the text in Chapter 18: Competitive Bidding and Resource Acquisition.

The IE recommends that the HECO Companies should be required to provide a concise list or table for each utility that identifies the resources which are proposed to be exempt or subject to waivers to supplement and become a part of the Action Plans.

e. The Action Plan shall specify the proposed scope of any request for proposal for any specific generation resource or block of generation resources that the Resource Plans state will be subject to competitive bidding, including, but not limited to, the size, timing, and operational characteristics and other preferred attributes of the generation resource or block of generation resources.

The Action Plans identify several existing and proposed requests for proposals subject to competitive bidding. The Action Plans do not appear to consistently provide the level of detail required by this provision regarding operational characteristics and other preferred attributes.

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COMPLIANCE WITH SPECIFIC PRINCIPAL ISSUES

The IRP Framework identifies ten sequential steps for the IRP process in section V.C. Specific Planning Guidelines. The first step is the identification of Principal Issues:

1. Identification of principal issues.

a. The utility, with input from the Advisory Group(s), shall identify and define the principal issues to be addressed in the planning process.

b. At the beginning of each planning review cycle the Commission may specify questions and issues that the specific round of planning analysis and the resulting plans and Action Plan should address.

Consistent with this provision, at the beginning of the HECO Companies’ IRP process, the Commission issued an Order specifying questions and issues to be addressed: Order No. 30534: IDENTIFYING ISSUES AND QUESTIONS FOR THE HAWAIIAN ELECTRIC COMPANIES’ INTEGRATED RESOURCE PLANNING, dated July 19, 2012 (Order Identifying Issues and Questions).

Also consistent with this provision, the HECO Companies have identified the Principal Issues to be addressed in the IRP process in Chapter 4 of the IRP Report titled: Principal Issues to Address. The content of the companies’ Chapter 4 is derived primarily from the language in the Commission’s Order Identifying Issues and Questions. Although the formatting and text differs, there appear to be no intentional differences in meaning between the Principal Issues identified by the Companies and the Order Identifying Issues and Concerns. Where there may be incidental differences in meaning it is mutually understood, based on clarification at several Advisory Group meetings, that the meaning in the Commission’s Order will be applied.

Comments by the IE are provided regarding each of the identified Principal Issues. The text characterizing the Principal Issues below, taken from the companies’ Principal Issues document, is provided in bold italic font.

1. Replace Existing Fossil Fuel Generating Plants.

Consider strategies for replacing existing fossil fuel plants with renewable energy resources.

Several strategies for deactivating or retiring existing fossil fuel generation units are considered in conjunction with implementation of new renewable resources. The final resource plans (upon which the Action Plans are based) for the Oahu, Maui and Hawaii Island utility systems include at least some deactivation of existing fossil fuel units and include additions of renewable energy resources including biofuel or geothermal powered firm generation resources.

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2. Inter-Island Connectivity.

Consider transmitting firm or intermittent electricity between islands, including developing undersea electricity transmission cables.

Several inter-island connection strategies were considered that would include the development of undersea electricity transmission cables. This is discussed in more detail below in the discussion of Principal Issue #14: Inter-Island and Inter-Utility System Transmission.

3. Geothermal Resources.

Consider generating electricity using geothermal steam or geothermal resources that replaces or mitigates fossil fuel-based generation.

Two geothermal steam resource technologies were characterized as resource options to be considered in the resource plans and analyses. Resource plans were analyzed that included geothermal resources for the Maui and Hawaii Island utility systems and for several strategies that interconnect the Hawaii Island system with the Oahu utility system. The final resource plans and Action Plans for the Hawaii Island system include geothermal resources that would reduce the amount of energy produced by fossil fuels.

4. Energy Storage.

Consider hydrogen and other available energy storage technologies to stabilize the grid when necessary.

The HECO Companies have characterized and performed analysis of a lead-acid battery energy storage system (BESS) for the Maui utility system (see IRP Report at 8-48). BESS resources were also included in analysis of resource plans for the Oahu and Maui utility systems. Battery energy storage is included in the final resource plans and Action Plans for these two systems. The Action Plans for the Molokai and Lanai utility systems include tracking developments in energy storage technologies for future consideration. The HELCO Action Plan does not include consideration of energy storage technologies.

There were no hydrogen storage or pumped hydroelectric storage technologies identified, characterized or analyzed in HECO Companies’ planning process. The Companies announced that energy storage technologies will be considered conjunctively using BESS options as a proxy for all storage options in the analysis of resource plans.

The analyses of BESS resources performed in the HECO Companies’ IRP process consider only some of the benefits these resources can provide to the utility system operations. The analyses considered the capacity deferral potential and contributions to system spinning reserves for the BESS resources but did not directly measure attributes of the BESS resources “to stabilize the grid when necessary”24. In this sense, the

24 Spinning reserve is a function necessary to stabilize the utility systems. As discussed in the section below regarding provision of necessary ancillary services, the resource plan analyses did

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economic analyses of the BESS resources did not really measure the fundamental benefits these resources are primarily being considered to provide.

The focus and scope of the BESS analysis seems to be determined more by the nature and capabilities of the Strategist model than by the nature of the pertinent question. Batteries have not been considered for the Hawaii utility systems for purposes of reducing curtailment in the manner simulated in the model. Batteries are being considered and added to serve other system objectives such as providing ancillary services that are not considered in the analysis presented.

5. Waste-to-Energy Facilities.

Consider generating electricity from waste-to-energy facilities to serve as an untapped fuel source.

The IRP Report includes analysis of waste-to-energy facilities for the MECO and HELCO systems. The IRP Report complies with this Framework provision.

6. Renewable Portfolio Standards (RPS).

The statement of this Principal Issue in Chapter 4 of the IRP Report (not repeated here) is essentially a re-statement of the statutory RPS. The HECO Companies analyzed attainment of the RPS in the analysis of resource plans, including several assumed levels of RPS goals in alternate scenarios and by including several levels of attainment of the RPS as in alternate resource plans/strategies. The analysis of RPS attainment is discussed in more detail below in the discussion of Principal Issue #10: RPS Rate Impact.

7. Energy Efficiency Portfolio Standards (EEPS).

The statement of this Principal Issue in Chapter 4 of the IRP Report (not repeated here) is essentially a re-statement of the EEPS requirements. The HECO Companies included a stand-alone analysis of the costs and benefits of EEPS attainment for some of the utility systems. Several assumed levels of EEPS attainment were characterized as part of the definitions of the scenario assumptions that served as the basis for analysis of the resource options. The analysis of EEPS attainment is discussed in more detail below, in the discussion of Principal Issue #11: EEPS Rate Impact.

8. Best Use of HECO CIP CT-1 Generating Facility.

The IRP must ascertain whether the current exclusive use of biofuel in CIP CT-1 reflects the highest or best use of the unit. For example, can greater efficiencies, and/or overall system benefits be gained if CIP CT-1 is used to support the maximum integration of renewables through the use of more efficient and/or cheaper fuels, rather than limiting CIP CT-1 use as a biofuel peaking unit with a negligible contribution to the Renewable Portfolio Standard?

not consider the economics of the operation of the system necessary to accommodate the large amounts of variable renewable energy assumed in the final resource plans.

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The HECO Companies have performed analysis specifically addressing this Principal Issue presented as Chapter 10 of the IRP Report. Several findings of this analysis appear to be meaningful: (a) operating the CT-1 unit using USLD or LNG fuels would be less expensive than continued operation using biofuels at currently expected prices and (b) a utility-scale PV resource would be a less expensive alternative to provide renewable generation penetration for the HECO system than continued operation of the CT-1 unit on biofuels priced as currently expected.

The analyses presented in Chapter 10 show minimal impacts on the amount of curtailment of renewable generation. These analyses address at least part of the Principal Issue. It was not analyzed or discussed whether benefits would be gained by using the CT-1 unit to “support the maximum integration of renewables”.

The statement of this Principal Issue suggests that the CT-1 unit might be operated in ways to specifically support the maximum integration of renewable generation, perhaps such as deliberately operating the unit at intermediate levels of dispatch to provide “up” regulating reserve. The analyses presented in Chapter 10 appear to allow the CT-1 unit to operate in normal economic dispatch. Although it is not explicitly discussed in the IRP Report, it is probably not cost-effective to operate the CT-1 unit out of economic dispatch.

Chapter 10 also presents analysis of the cost-effectiveness of converting the CT-1 unit to a combined cycle unit by adding a heat-recuperating steam generation addition. This analysis indicates that conversion of CT-1 to a combined cycle unit would be cost effective for all assumed source fuels. A chart is presented in Chapter 10 that shows that converting the CT-1 unit to combined cycle operation would have minimal impacts on the curtailment of renewable generation. The IRP Report does not include discussion or meaningful analysis of how a change of the operation of the CT-1 unit from a single cycle expensive-to-run peaking unit to an efficient combined cycle unit would affect the operation of the utility system taking into consideration the very large proportion of variable renewable generation resources presumed in the later parts of the planning period.25

The HECO Companies have performed apparently meaningful analysis addressing this Principal Issue. As discussed elsewhere in this Final Certification, however, any conclusions regarding the prudence of conversion of the CT-1 unit to a combined cycle unit should await further analysis of the economics of HECO system operation in conjunction with expected penetrations of renewable variable generation.

25 As discussed earlier in this Certification (regarding the feasibility and cost of accommodating extensive variable renewable generation), prior to any determination of prudence for investments in combustion turbine technologies (including conversion of the CT-1 unit on the Oahu system to a combined cycle unit), there should be a more thorough examination of long term utility system needs, taking into consideration the expected penetrations of variable renewable generation resources, and using appropriate utility system modeling tools and assumptions.

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9. Reasonable Cost and Rate Impacts.

The Companies, with input from the Advisory Group, must consider whether the IRP report and Action Plan result in affordable electric utility service. Reasonable cost is an important objective for resource planning identified in the statement of the goal of Integrated Resource Planning. The affordability of utility-provided energy services is a primary concern and objective of the Commission, especially in light of the need for timely implementation of statutory standards and goals and the need to maintain reliable energy service. Among any other possible measures of the achievement of this objective, the Companies’ planning analysis shall include meaningful measures of the rate impacts of the Resource Plans and Action Plan evaluated in accordance with the planning scenarios, forecasts, and sensitivity analyses. The Companies shall determine meaningful methods to measure rate impacts with input from the Advisory Group.

This Principal Issue, stated verbatim from the Commission’s Order Identifying Issues and Questions, (1) identifies the affordability of energy services as a primary concern and objective, (2) requires careful attention to meaningful measures of rate impacts and (3) requires the HECO Companies to utilize input from the Advisory Group to determine how rate impacts are meaningfully measured and whether the IRP Report and Action Plans will result in affordable energy service.

The HECO Companies have included costs, rates and bill impacts in the planning objectives and metrics presented in Chapter 4 if the IRP Report and have provided measurement of these attributes in the analyses and presentation of the resource plans, final resource plans and Action Plans. The Companies’ clear focus on utility and total resource costs in the consideration of the resource plan analysis indicates that costs, rates and bill impacts are a primary concern.

Although details are not transparent and are not fully explained in the IRP Report, the Companies have made special efforts to improve the comprehensiveness and accuracy of the characterization of rate impacts. In particular, the methods employed to characterize capital cost streams and account for embedded existing system and non-generation costs are improvements from previous IRP cycles.

Although methods have improved, the consideration of costs and rate impacts in the IRP Report has several shortcomings:

• The HECO Companies did not enlist the participation of the Advisory Group in determining meaningful methods to measure or present rate impacts.

• The Companies did not enlist input from the Advisory Group to consider whether the IRP Report and Action Plans result in affordable energy service.

• Except for presentation of several metrics and charts showing bill and rate impacts, the affordability of energy services is not explicitly or substantially addressed in the IRP Report.

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• Rate and bill impacts presented in the IRP Report are unduly optimistic. Rate impacts are underestimated in several respects and are presented in a manner that de-emphasizes concerns.

• The HECO Companies have not meaningfully addressed the concerns identified by the Commission in Principal Issue #12 Captive Customer Rate Impact, below.

The IRP Report gives the impression that the rates resulting from the final resource plans and Action Plans are reasonable and do not represent a serious concern. In some instances the IRP Report implies that rates resulting from the Action Plans will decrease.26 The presentation of the Action Plan for each of the Companies is organized according to four overall objectives, the first of which is “Lower Customer Bills”.

The quantitative results of the analyses in the IRP Report, however, indicate that costs, rates and bills will increase. The fact that the objectives to lower rates are not met is not highlighted in the IRP Report. There is no substantial discussion or evaluation presented in the IRP Report that squarely addresses concerns regarding whether the Action Plans will result in affordable rates or energy services.

Although the methods used to calculate rate impacts are improved in several respects, the rate impacts presented in the IRP Report are likely to be underestimated. Several types of expected costs are not included in the rate estimates:

• The costs of incorporating the large penetrations of variable renewable generation assumed in the final resource plans and Action Plans is not included in rate impact projections. These include the costs of increased necessary operating reserves and the capital and operating costs of resources and infrastructure to provide necessary ancillary services.

• The costs of distribution system infrastructure measures to accommodate the extensive assumed amounts of renewable distributed generation are not quantified or included in the rate impact projections.

• The “Stuck in the Middle” scenario used to characterize the rate impacts of the final resource plans and Action Plans excludes the costs of expected carbon emissions fees.

• The analyses assume optimized resource timing and ideal matching of resources to loads.

• The costs of compliance with new air emissions regulations for the independent power producers supplying the HECO Company systems is excluded.

26 See, for example, the Executive Summary at page ES-6: “our customers expect the Companies to develop and implement an IRP Action Plan that will help lower their electricity bills. This will be accomplished by: …”, and references that a critical goal is to stabilize and lower costs to customers (e.g. at p.ES-22).

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• The full long-term costs of smart grid implementation (beyond AMI and initial costs in the Action Plan) are not included in the long range rate impact projections.

• It is not clear whether the costs for life extension and increased maintenance costs for older generation units is appropriately represented in the projections of resource plan costs.27

It should also be recognized that the rate impacts projected in the IRP Report are “bottom-up” estimates of known or expected costs. Unexpected costs are likely but not included. Contingency allowances typically applied to bottom-up future project cost estimates have not been included in the projections of rate impacts.

There is certainly some uncertainty regarding all aspects of expected costs and rate impacts. Some cost estimates, such as construction cost escalation projections for renewable resources may be under-estimates.28 The methodical exclusion of the types of costs noted above, however, indicate that rate impacts are most likely being under-estimated.

Aside from any under-estimation of rate impacts, the presentations of rate impacts in the IRP Report appear to be expressed in the most positive light. The projections of rate impacts selected for presentation in the Executive Summary (p. ES-23) and presented in slides to the Advisory Group represent the “kindest” portrayal of rate impacts for HECO residential customers (see chart below).The overall impression is that long term rate impacts will be relatively stable.

27 The increasing costs of maintaining older units figures prominently in the capital budgets and recent decoupling rate adjustments for the HECO Companies. These substantial costs should be realistically accounted for in the assessments of rates and affordability as well as in economic comparisons of strategies and resource plans that maintain versus retire older generation units. 28 The IRP Report assumes that construction costs for future renewable energy resources will escalate in most scenarios. Construction costs for some renewable resources have been decreasing in recent years. The response to HECO’s recent solicitation of renewable projects for which waivers are being requested indicates that prices for some renewable projects may generally be substantially lower that assumed in the IRP process. The lower costs of the “waivered” projects are included in the final resource plans ($0.17/kWh nominal levelized) and are reflected in the rate impacts projected for the final resource plans and the Action Plans. The costs of later renewable resources are priced using higher initial costs and are escalated throughout the planning period.

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These projections are based on “average customer bills” in which the number of kWh use-per-month used to calculate the portrayed monthly bills decreases over the planning period and in which costs are expressed in “real” dollars, deflated over the planning period to account for the effects of inflation.29 It is important to note that this portrayal does not present the rate impacts of the proposed Action Plans. Action Plan bill impacts are higher than any of the individual final resource plan bill impacts as is shown in the chart below.

29 This is a reasonable format for portrayal rate impact data as long as it is clearly recognized that this is not the more typical format used by HECO to portray customer bills graphically to the public and the Commission assuming a monthly bill for a constant 600 kWh expressed in nominal (current) dollars (as, for example, provided to the Commission each month in ECAF reports).

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Action Plan rate projections are provided in the IRP Report only for the five year Action Plan period.30 Long term rate impacts associated with the Action Plans are not presented. No long term projections are provided that include “all-in” expected Action Plan costs or costs associated with maintaining simultaneous contingency plan, parallel plan and secondary plan options.31

A less-kind view of the rate impacts estimated by the HECO Companies’ analysis is an examination of rates (not bills) in nominal terms (not adjusted for inflation). The chart below portrays nominal average rates for a HECO commercial customer, increasing by over 25% during the five-year Action Plan period.

30 The Action Plan bill impacts portrayed here are the bill impacts portrayed in the IRP Report Figure 297 on page 19-58, based on the supporting spreadsheets provided by the HECO Companies. 31 The capital costs associated with the five-year Action Plans are stated as carrying charges disbursed over the assumed life of the assets. Although long-term projections are not provided in the IRP Report, the Action Plan expenditures and rate impacts would extend through most of the planning period.

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The HECO Companies identify several causes of near-term rate impacts in various places in the IRP Report, including the need to comply new air quality regulations, and sales erosion associated with energy efficiency and net energy metered customer generation. There is no quantification of the magnitudes of these factors in absolute terms or compared to other possible factors, such as changes in fuel prices, utility expenses, or capital costs for production and transmission infrastructure or other components of utility capital projects.

The characterization and presentation of rate and bill impacts and consideration of the affordability of rates was not made with input from Advisory Group as required by this Principal Issue. This would have been informative to the utilities and the Commission in assessing the reasonableness, priorities and issues regarding rate and bill impacts.

The IRP Report does not meaningfully address this Principal Issue. The IRP process was not conducted in compliance with the provisions in this Principal Issue pertaining to utilization of Advisory Group input.

10. RPS Rate Impact.

The Companies shall consider in its analysis the cost and rate impacts that result from fully attaining, various levels of partially attaining, as well as exceeding the current RPS law.

The HECO Companies analyzed the attainment of the RPS by including several alternate assumed levels of RPS requirements in the differing scenarios and by including several levels of attainment of the assumed RPS requirements as alternate resource plans/strategies. A series of analyses focused on determining the costs of RPS attainment are presented in Chapter 8 of the IRP Report (pp. 8-62/115).

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Based on initial analyses of the individual HECO, HELCO and MECO Maui Island systems, the IRP Report concludes as follows:

Regardless of the scenario or company, the individual system analyses show that renewable resources can be added to the grid economically. The existing level of RPS or RPS targets do not drive adding renewable resources; instead, the model added these resource to lower total resource cost.

HELCO and MECO easily exceed the current RPS mandate in all scenarios, so no further analysis was needed. (IRP Report at 8-89).

Based on further analysis of the HECO system using the “Stuck in the Middle” scenario, the HECO Companies conclude that adding additional renewable resources to meet and exceed the RPS results in lower total resource costs and lower customer rates (IRP Report at p. 8-102).

The Companies overall conclusion is that the RPS can be met and exceeded without upward rate impacts. This conclusion is based on observation that the resource plans modeled with the most economical combination of renewable resources exceeded the RPS requirements. In other words, enforcement of the RPS requirements in the modeling analyses did not result in increased percentages of renewable generation beyond the amount of renewable generation selected for economic reasons.32

The analyses of the individual HECO, HELCO and MECO Maui Island systems presume that RPS requirements are attained on each island individually. As pointed out in comments by the Division of Consumer Advocacy, the analyses result in the assumed attainment of consolidated RPS percentages well in excess of statutory requirements. Additional analyses modeling these three utility systems on a consolidated based were performed as reported in Chapter 8 of the IRP Report at pages 8-103/115. The consolidated analyses more closely attain target RPS attainment for the HECO Companies on a consolidated basis. The Companies conclude that the RPS can be achieved but that, in all scenarios, meeting the RPS requirements “will require a contribution from a growing NEM/FIT program.” (p. 8-115)

32 The Consumer Advocate takes issue with this finding and asserts that HECO’s resource plans that include RPS requirements (40% in 2030) include more renewable generation than the resource plans optimized without the RPS requirements. See discussion and table at pp. 5 – 6 in final comments of the Consumer Advocate [Synapse], dated July 17, 2013, (provided as an attachment to this Certification). HECO’s findings and the Consumer Advocate’s assertions are not investigated further in this Certification.

The Consumer Advocate also observes that the analyses of the resource plans and the resources included in the final resource plans substantially exceed the statutory RPS requirements and could be optimized with cost savings to more closely attain RPS requirement on a consolidate system basis as allowed by statute. (comments at pp. 6 – 9).

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All of the analyses of RPS Rate Impact reported in Chapter 8 presume that the amount of renewable resources available to each utility system are unconstrained by siting or other limitations, would be available on-island (without inter-island energy transmission) and can be incorporated on each utility system reliably, without exceeding projected estimates of renewable curtailment and without substantial costs of providing the necessary associated ancillary services. The conclusions of HECO’s RPS Rate Impact analyses could therefore be more appropriately stated as follows:

(1) If on-island renewable resources are available, unconstrained, at the costs assumed in the analyses and (2) if it is feasible to operate each utility system reliably with the presumed percentages of variable renewable generation, and (3) if no further costs would be required to accommodate the variable renewable generation resources, and (4) if levels of renewable curtailment are properly estimated, then the RPS could be attained without greater cost than the most economical resource mix.

Without establishing the veracity of all four of these presumptions, however, the IRP Report findings regarding the economics and rate impacts of attaining the RPS should be considered correspondingly conditional. The strength of the RPS rate impact analysis would be improved by addressing (or at least identifying and discussing) each of the uncertain presumptions. What if sufficient on-island resources are not available on Oahu to meet the RPS? Is it possible to meet or exceed the RPS without upward rate impacts with inter-island transmission? What if the amount of variable renewable resources that can be reliably operated is limited or would incur substantial operating or infrastructure costs associated with providing sufficient necessary ancillary services? Can the RPS be still be attained without positive rate impacts? Addressing these questions is consistent with scenario planning objectives and approach (addressing uncertainties methodically) and is necessary to provide substantial and meaningful answers to this Principal Issue. At a minimum, the uncertainties regarding assumptions and the weaknesses of this analysis should be candidly stated to best inform Hawaii’s decision-makers.

The IRP Report does not meaningfully address this Principal Issue.

11. EEPS Rate Impact.

The Companies shall consider in its analysis the cost and rate impacts that result from fully attaining, various levels of partially attaining, as well as exceeding the current EEPS law.

The Chapter 8 of the IRP Report presents several stand-alone targeted analyses that represent the HECO Companies’ investigation of the cost and rate impacts associated with various levels of attainment of the EEPS.33 Several levels of energy efficiency

33 The HECO Companies also included several assumed levels of EEPS requirements as characteristic assumptions defining each of the planning scenarios. After extended discussion early in the IRP process, it now appears to be agreed that mere inclusion of differing levels of

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program implementation were analyzed for the HECO, HELCO and Maui Island systems under three of the four planning scenarios. The analyses indicate that, in all cases, higher levels of energy efficiency program implementation (including exceeding EEPS requirements) results in lower resource plan total resource costs. In other words, maximizing energy efficiency program implementation lowers total customer costs (including the customers’ share of efficiency measure costs). For most utility systems and most scenarios, the analysis indicates that increasing levels of energy efficiency program implementation results in increased rates due to the decreased utility sales that determine average rates. The IRP Report focuses largely on increased rate impacts (rather than lower resulting customer bills) in making primarily cautionary conclusions regarding energy efficiency options.34

The analyses presented in the IRP Report are rudimentary in several respects.

First, the characterization of alternate levels of energy efficiency implementation in the analyses intensity is relatively simplistic, presuming proportionally extrapolated and interpolated costs and impacts of the existing PBFA program portfolio to represent expanded or reduced energy efficiency implementation respectively. No specific energy efficiency measures or programs were identified or tested.

Second, the analysis of various assumed intensities of energy efficiency program implementation have been performed only on generic resource plans assuming only ICE and SCCT generation resources as possible resource additions. This method makes some sense as a preliminary or screening approach.35 Ultimately, however, a more meaningful test of the costs and rate impacts that result from various levels of energy efficiency implementation should be based on resource plans or strategies that more closely resemble the expected economics and mix of resources targeted in the Action Plans.

The results of the analyses indicate that higher levels of investment in energy efficiency result in lower total resource costs. Exceeding the EEPS by 10%, the maximum amount tested, is the least-cost case in all cases tested. Pending verification by more thorough

EEPS attainment as characteristics of the planning scenarios does not, of itself, constitute meaningful analysis of this Principal Issue. 34 For the HECO system, the Companies conclude that the most appropriate level of energy efficiency implementation will depend on the current and future level of sales, noting that if sales levels decrease, rates would increase. (IRP Report 8-55). For the MECO system the conclusion is that, depending upon the trajectory of future sales, reduced energy efficiency implementation may be appropriate. (IRP Report 8-61). No conclusions were found in the IRP Report for the HELCO system. 35 In order to measure the capacity-deferral value of energy efficiency measures it is most resolute to use generation resource expansion plans that include deliberately small increments of deferrable generation. Ultimate accuracy requires consideration of the energy efficiency measures in the context of more realistic circumstances.

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analysis, this result suggests that higher amounts of energy efficiency than what was tested may be a preferred option. An existing ongoing study of technical and economic potential of energy efficiency will indicate the potential magnitude and costs of the available energy efficiency more accurately than the rudimentary characterization in the Companies’ IRP analyses. It would have been valuable, meanwhile, to further explore the potential benefits of higher levels of energy efficiency program implementation in the IRP analyses. Such further analysis could help scope and consider potential measures in the Companies’ Action Plans and inform the Commission regarding the extent to which energy efficiency investments, if verified by ongoing studies, can best meet customers’ energy needs. Analysis of possible extended potential of energy efficiency program implementation would be especially informative in consideration of mitigating options should the availability of economical LNG, heavily relied upon in projecting long-term rate impacts of the Action Plans, should not develop as planned.

At the May 1, 2013 Advisory Group meeting, the representative of the Public Benefits Fee Administrator (PBFA) clarified that energy efficiency measures can be targeted to specific geographic areas and can target specific load management objectives. This is a potentially valuable option that could be applied as a means to avoid or defer transmission or distribution system investments. There does not seem to be any mention in the Action Plans or elsewhere in the IRP Report of considering actions to investigate and utilize feasible and cost-effective geographically targeted energy efficiency and load management opportunities.

12. Captive Customer Rate Impact.

The Companies must consider whether and to what extent utility customers who do not have a renewable energy device or have implemented energy efficiency measures could face high cost and rate impacts if utility sales decrease for any of several possible causes. The planning process should consider circumstances that could compound to result in high utility fixed costs and/or low utility system sales and evaluate the extent to which these circumstances could lead to high rate impacts and possible customer exit or self-generation.

The HECO Companies have been reluctant to address this Principal Issue squarely. Initially the Companies asserted that this issue would be sufficiently addressed by the fact that the “Blazing a New Frontier” scenario included substantially decreasing sales levels. At several times during Advisory Group meetings and in prior quarterly and certification reports the IE has expressed concern that the HECO Companies’ approach to addressing this issue may be deficient. Until announced otherwise at the May 1, 2013 Advisory Group meeting, the Companies maintained that they did not intend to characterize sub-optimal circumstances or customer exit opportunities or electricity rate thresholds that could result in increased customer exit or self-generation.

Analyses addressing this Principal Issue were presented for the first time in the final IRP Report filed on June 28, 2013. One analysis approach examines customer exit opportunities by estimating the costs of generating electricity using a fuel cell with distributed LNG gas and compares these costs to electricity rates of several of the

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Companies under several scenarios. A separate analysis approach examines the resulting rate impacts if utility sales volume drops substantially and unexpectedly after the Action Plan expenditures are committed.

The analyses of customer exit potential indicate that, even with relatively high-cost fuel cell generation technology, customers might be better off generating their own electricity in some circumstances. In most circumstances the calculated costs of fuel cell self-generation exceed the costs utility-provided electricity.36

It is not clear that fuel cell electricity generation appropriately characterizes the economics of customer opportunities to partially or completely “exit” the utility system in favor of other generation alternatives. Compared to combined heat and power (CHP) options or simple conventional generators utilizing future economically available gas-utility-distributed LNG, the fuel cell technology probably over-estimates customer costs and underestimates the potential for system exit.

It should be clear that the question posed in this Principal Issue has broad implications that should be part of the consideration risks and uncertainty required by several specific Framework provisions.37 Investments in renewable energy resources are characteristically capital intensive. Several specific large projects under consideration would entail substantial long-term fixed financial obligations that must ultimately be borne by future utility customers. These include possible inter-island transmission systems, LNG infrastructure development, environmental compliance investments and replacement of older generation units. All of these capital investments represent risks that need to be soberly considered in light of uncertainties regarding the magnitude and continuity of the utilities’ future sales base.

More generally, the IRP Report does not consider customer response to the rate increases predicted for the final resource plans and implementation of the Action Plans. The forecasts of sales in the resource analyses are not adjusted in light of the predicted rate increases.38

36 The customers’ utility energy prices used in the analysis are not estimated billing energy charges but are estimated total customer bills expressed as costs per kWh. In other words, the analysis used average total bill costs to represent the savings customers would see with reduced bills resulting from self generation. Customer savings would actually be based on only the energy charge portion of their bills unless the customer entirely removed some loads from the utility system (in which case the customer would also avoid demand charges) or entirely exited the utility system. 37 Framework: section IV.D.1.a.(4) at page 13; section V.C.6.f at page 18; and section V.C.8.d at page 20. 38 Predicted rate increases seem substantial enough to result in customer response. As noted in this Certification, large customer rates for HECO commercial customers are predicted to increase by approximately 25% in the first five years of HECO’s Action Plan.

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It should also be clear that the question posed by this Principal Issue is relevant not just to determine overall potential costs and risks but also pertains to evaluation of differences between resource plans and strategies. Some strategies include substantial capital investments that may appear cost effective in the long-run under assumed circumstances. It should be recognized that these investments could represent risks to the utility and future customers if circumstances do not develop as presumed. The possibility of prolonged decreases in utility sales, possibly exacerbated by large customer exit or self-generation is a credible source of uncertainty.

The HECO Companies have not sincerely or sufficiently addressed this Principal Issue. The seriousness of potential rate impacts to customers without self-generation or extensive energy efficiency opportunities under non-ideal utility system planning or economic circumstances has not been meaningfully measured. The analyses presented in the IRP Report appear to underplay rather than squarely examine this Principal Issue.

13. Resource Plans and Strategies.

The Companies must consider whether the Resource Plans effectively ensure affordable electric rates, maintain service reliability, and accommodate expected increasing proportions of variable and/or intermittent renewable generation resources.

This Principal Issue restates a general preamble in the Commission’s Order Identifying Questions and Issues that pertain to several more specific issues below. The HECO Companies did consider each of the listed issues at least to some extent, but as discussed in the context the individual issues, the IRP Report does not fully address this Principal Issue.

14. Inter-Island and Inter-Utility System Transmission.

The Companies must analyze the comparative costs and benefits of whether possible alternate inter-island and inter-utility system transmission connections across multiple islands can be used to increase use of renewable energy resources, lower costs of existing fossil-fuel resources, or provide other net benefits across multiple islands.

The HECO Companies analysis of the economics of inter-island and inter-utility transmission systems is provided in Chapter 11 of the IRP Report. Several analyses were performed:

• Three “cases” were analyzed for interconnecting the Oahu and Island of Hawaii systems

• Two cases were analyzed for interconnecting the Oahu and Maui Island systems. These analyses used the “Stuck in the Middle” scenario as a reference case.

• One case, with alternate assumptions regarding transmission system costs, was analyzed for connection of a 200MW Lanai Wind resource to Oahu under all four planning scenarios.

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All of the analyses have several shortcomings discussed below. Results of the analyses should be considered preliminary and indeterminate pending verification by more substantial modeling analysis.

The analyses of Oahu-Hawaii Island and Oahu-Maui Island inter-utility system transmission were conducted as stand-alone analyses to investigate whether sufficient cost savings would result from utility interconnection to offset the costs of an under-sea cable transmission system and associated necessary transmission infrastructure. The Oahu-Hawaii interconnection assumed a redundant two-cable installation and considered transfer of reliable capacity as well as economical energy transfers. The Oahu-Maui interconnection assumed a single cable installation and considered only economical energy transfers.

The analyses concluded that, in cases assuming that low-cost LNG fuel is available on the Oahu system, there was not sufficient economical opportunity for transfer of capacity and energy between systems to justify the costs of the assumed undersea cable transmission systems. In cases where low-cost LNG fuel is not assumed to be available on Oahu and higher USLD fuels are utilized, and more economical renewable resources are assumed to be available on the neighbor island systems, the undersea cable transmission systems are found to be cost-effective.

The analyses of interconnection of a 200MW Lanai wind resource to the Oahu system compares costs of the Lanai wind and undersea cable transmission system with the costs of developing additional renewable variable generation resources on the Island of Oahu without undersea transmission. The analysis concludes that the cost-effectiveness of the Lanai wind resource and cable system option depends on the cost and price of the undersea cable system.

The analyses of inter-island and inter-utility transmission systems presented in the IRP Report should be considered rough preliminary screening efforts. Conclusions should be considered indeterminate pending verification by more thorough analysis that addresses several substantial shortcomings:

• The cases defined in the Oahu-Hawaii and Oahu-Maui analyses are screening scenarios that are designed to compare incremental costs of several presumed circumstances with and without inter-utility transmission connection. The “cases” are not analyses or comparisons of fully optimized utility resource plans. For example, the cases with inter-utility transmission connection are not compared with the preferred or other final resource plans that are ostensibly the best resource plans assuming no inter-utility transmission connection. More generally, the logic of the selection of the assumptions and resource plans used in the various cases is not sufficiently clear to support conclusive results.

• The Strategist model, as configured, is not the most appropriate and is probably not a sufficient modeling tool for this type of analysis. Both the Oahu and neighbor island utility systems are assumed to have large penetrations of variable renewable generation resources, including large penetrations of distributed PV

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resources and, in some cases, substantial amounts of additional utility-scale PV resources. The hourly load curves for energy and capacity to be provided by firm dispatchable resources in the later years of the planning period are bi-modal, with peak firm resource requirements in both mornings and evenings and with lowest dispatchable resource requirements during both night time (low system demand) and daytime (high PV energy generation).

o The Strategist model, as configured, does not differentiate between daytime and nighttime periods of low demand for dispatchable resources. Dispatchable units that are assumed to be allowed to “cycle” are assumed by the model to effectively cycle for daytime as well as night time periods. Some of the cycling units, particularly the baseload units modified for cycling service, are clearly not planned and are probably not capable of cycling two times per day. The model therefore substantially under-estimates the amount of curtailment of excess renewable generation. This is an important shortcoming of the modeling of variable renewable generation generally but is particularly problematic in the analysis of the magnitude of potential economical energy transfers that would be allowed by inter-utility transmission connection.

o The availability of opportunity for economical energy transfer between utility systems is a function of instantaneous resource commitment and dispatch. The Strategist model utilizes a load duration curve algorithm to simulate resource commitment and dispatch. The model is not sensitive to sequential hourly system conditions and is not sensitive to the coincidence of conditions between the two utility systems. The determination of inter-utility energy and capacity transfer opportunities would be more appropriately modeled using a sequential hourly production cost model that maintains coincident load, commitment and dispatch information on both utility systems. It is not clear that the Strategist model is producing meaningful results.

o The Strategist model, as used in the analyses, does not directly curtail variable renewable resources under conditions of excess generation. As a result of the sequence of steps in simulating the utility generation system, the model accepts all variable renewable generation prior to considering needs for the commitment and dispatch of firm generation units. Based on the commitment and dispatch of firm generation units according to a load duration curve algorithm, excess generation resulting from must-run unit commitment is counted as “dump energy” and is used as the metric to represent the amount of resource curtailment in each modeling run. Costs of generating dump energy are included in the utility costs and total resource costs as well as the costs of the variable renewable energy. In reality, curtailment results in decreased purchase of energy by the utility from variable renewable generation producers. This double counting of costs of dump energy is not ideal and is recognized as one weakness in the

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Strategist modeling techniques employed in the resource analyses.39 In the simulation of inter-utility transmission connection, the treatment of dump energy is particularly problematic since the apparently substantial transfers of neighbor island dump energy via inter-utility transmission connection are made essentially without net cost and are not considered in the comparisons of total resource costs.

• The analysis of an inter-island transmission connection of a Lanai wind resource to the Oahu system depends fundamentally on analysis of the difference between the assumed Lanai wind generation costs and the costs of alternative renewable generation resources on the island of Oahu. The characterizations of the Lanai and Oahu renewable resources, however, are not based on consistent or comparable financial or cost assumptions. Unlike the other Oahu-based renewable resource options, the price and characteristics of the Lanai Wind option are based on a “term sheet” that is the result of a prior bidding process. Other wind resource options are characterized in a series of UIF sheets that include several resource sizes and site location wind speed profiles. Inconsistent cost escalation assumptions are applied in the characterization of the Lanai wind resource and the Oahu-based alternatives.40 The treatment of capital costs for the Lanai Wind option is also different than the other wind options (and has not been presented for review). The comparison of the Lanai Wind option to the other wind options is, in essence, an “apples to oranges” comparison.

As a more general matter, addressing this Principal Issue requires some examination of whether it is feasible to site and implement extensive amounts of renewable energy resources on the Island of Oahu. One presumption underlying the need for inter-island transmission (that was asserted in initial undersea cable initiatives) was an assertion that sufficient economical generation potential did not exist on the Island of Oahu where the bulk of Hawaii’s energy need is located. The IRP Report presumes the opposite, finding that sufficient renewable generation can be sited on the Island of Oahu to meet and

39 In discussing this matter, the HECO Companies acknowledged the limitations of the modeling analysis but pointed out that, to the extent that the curtailment of variable renewable resources will ultimately be incorporated into the pricing of the purchased energy, the modeling analysis properly represents the underlying fixed capital costs assumed in characterizing the resources in the analyses of the resource plans. 40 The Lanai Wind option costs, including the costs of an undersea transmission system, were characterized as a fixed per-kWh-price that were not escalated during the planning period or study periods. The costs of other wind options were characterized as separately calculated and differently modeled capital costs, fixed O&M and variable O&M charges. O&M costs were escalated at 3% per annum (or 2% for one scenario) throughout the planning and study periods. Costs for the Lanai Wind option were set as of the date of the term sheet several years prior to in-service date. Construction costs for the other wind options were assumed to escalate annually until the in-service date and then again through the study period for assessment of replacement costs.

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exceed RPS requirements. This feasibility of siting extensive amounts of renewable generation on Oahu does not seem to be resolved either way. The IRP Report does not provide any probative discussion or address this question explicitly.

For the reasons above, it is clear that further clarification and analysis will be necessary to fully address the questions posed in this Principal Issue.

15. Smart Grid Implementation.

The Companies must analyze the comparative costs and benefits of whether adoption and utilization of a smart grid, including smart meters, should be completed by the Companies. The Companies shall analyze how these technologies could:

* Enable the electrical grid to be operated more efficiently and reliably.

* Enhance customer service.

* Accommodate additional renewable energy resources by remotely controlling customers’ loads.

* Increase energy efficiency and conservation through real-time transparency of energy usage and costs.

To what extent can modifying existing and future distribution system design criteria and operation practices enable greater interconnection of distributed renewable energy resources?

This Principal Issue requires (1) analysis of the comparative costs and benefits of smart grid implementation and (2) analysis of potential distribution system measures to enable greater interconnection of distributed renewable energy resources. In short:

• The IRP Report identifies substantial potential benefits for smart grid implementation and identifies ongoing and planned studies that might provide the analysis required by this Principal Issue. Analyses to address this Principal Issue are not complete and are not included in the IRP Report.41

• The IRP Report does not identify to what extent modifying existing and future distribution system design criteria and operation practices could enable greater interconnection of distributed renewable energy resources.42

41 The Consumer Advocate observes that “no new quantitative or specific information related to the near-term implementation of these programs is present in the IRP” beyond what was presented to the Commission in the Companies’ 2008 AMI Application in Docket 2008-0303. See page 16 of final comments of the Consumer Advocate [Synapse], dated July 17, 2013, at page 16 (provided as an attachment to this Certification). 42 Although the need and intent to address distribution system constraints on renewable energy interconnections is mentioned in several places in the IRP Report, there is no identification or discussion of what specific measures are planned, whether or when any specific measures would

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The HECO Companies’ analysis of smart grid implementation is presented in Chapter 12 of the IRP Report. The Report identifies plans to conduct further studies of the benefits and costs of smart grid implementation. The Report does not include thorough analysis of the comparative costs and benefits of whether adoption of a smart grid or smart meters should be completed by the Companies. The Report includes descriptions of potential smart grid benefits but does not identify corresponding costs. The Report identifies and describes existing and planned studies that would appear to ultimately address the analysis of comparative costs and benefits required by this Principal Issue.

Several analyses of costs and benefits for smart grid implementation are summarized in Chapter 12 but none are substantially responsive to what is required by this Principal Issue. Several studies conducted for other utilities are summarized. One analysis of costs and benefits previously submitted to the Commission is summarized but does not address the scope of pertinent benefits or costs identified for the smart grid implementation.43 One very basic analysis is presented that shows the magnitude of fuel cost savings for each of the HECO Companies assuming a one percent reduction in utility sales.

The HECO Companies include implementation and costs of Advanced Metering Infrastructure (AMI) in the Action Plans for each of the Companies. Substantial benefits have been identified for smart grid implementation, some (but not all) of which would be realized by AMI implementation. AMI implementation and costs may be reasonable, but this has not yet been demonstrated in the analyses presented in the IRP Report. The studies identified in the IRP Report may ultimately provide the necessary information to support the AMI measures.

The HECO Companies have not addressed the full scope of this Principal Issue.

16. Strategies for Handling Environmental Regulations.

The Companies must analyze the comparative costs and benefits of strategies to comply with expected and possible changes in environmental regulations. One of the strategies to be analyzed is whether fuel switching will result in the net reduction in capital and operating costs when complying with new environmental regulations.

Although some aspects of this issue are not fully investigated, the HECO Companies have conducted extensive and meaningful analyses to address this Principal Issue.

be implemented, whether or to what extent measures would be effective, whether the scope of available measures would sufficiently meet expected interconnection needs (including the level of distributed generation presumed in the final resource plans), or what costs would be associated with any specific measures or necessary measures collectively. 43 Table 117 on page 12-7 of the IRP Report shows benefit cost ratios presented to the Commission in Docket No. 2008-0303. The table is based on analysis (not presented in the IRP Report) that considers a subset of the benefits and a subset of the costs associated with smart grid implementation characterized in Chapter 12.

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Analyses were conducted to compare several strategies to meet expected changes in environmental regulations including installation of emissions reduction equipment on existing generation units, fuel switching using several alternate compliant fuels and retirement of existing fossil-fueled generation units.

The Strategist model used in the analyses of resource plans is an appropriate tool for this type of analysis.

Several aspects of the analyses need further investigation, analysis and/or verification:

• The economics of unit retirement need to be further explained and justified. It should be verified whether the costs of life extension and any increased costs of maintaining older generation units throughout the planning period are realistically stated and whether these costs are included and excluded appropriately in resource plans that exclude or include unit retirements respectively.

• Feasible timing and logistics associated with unit retirements should be considered.

• Consideration of retiring an intermediate number of units should be considered in addition to the existing analyses that examine strategies that only retire either a few or else most existing units.44

• Appropriate sensitivity analysis should examine the extent to which results are dependent on uncertainties including estimates of alternative fuel costs (including consideration of changes in Hawaii refinery operation or termination), uncertainty in costs of required air emission control equipment. Alternate assumptions regarding regulatory agency allowances regarding timing and assumed extensions in compliance requirements should be considered.

The IRP Report is compliant with this Principal Issue, although further sensitivity analysis should be performed and verification and investigation is necessary regarding related generation unit retirement options.

17. Fuel Supply and Infrastructure.

The Companies must analyze the comparative costs and benefits of:

* Modifying the fuel supply portfolio and delivery infrastructure—for existing utility and non-utility fossil generation resources—to reduce system fuel costs and/or reduce environmental compliance costs.

* Assessing the total cost (capital, fuel, and operating expenses) and merits of fuel supply strategies to utilize alternate fuels, supply procurement methods, and delivery options.

44 A general discussion and several specific recommendations regarding further analysis of generation unit retirement is provided in the final comments by the Consumer Advocate [Synapse], dated July 17, 2013 (provided as an attachment to this Certification)

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One specific question concerns the fuel supply infrastructure requirements, including costs, necessary to provide diverse fuel sourcing, procurement, and delivery options. Will significant changes in fuel output by refineries operating in Hawaii affect the Companies’ fuel supply options?

The costs of fuel supply and infrastructure appear to be included and considered in the analyses of the resource plans. The fuel cost assumptions in the analyses of resource plans include embedded costs of fuel infrastructure, including fuel infrastructure modifications required by supply of LNG according to two supply strategies. This appears to be an appropriate general approach.45 The IRP Report does not include a separate analysis dedicated to the determination of the comparative costs and benefits of modifications to fuel infrastructure.

The IRP Report does not include analysis or discussion regarding effects of significant changes in output of Hawaii’s fuel refineries. It is not clear and it is not discussed whether the ranges of fuel price projections assumed in the analyses encompass the full range of possible changes in fuel supply pricing that are possible over the planning period resulting from changes in Hawaii fuel refinery operations or terminations.

18. Fossil Fuel Generation Resources.

The Companies must analyze the comparative costs and benefits of:

* Modernizing or adapting existing utility and non-utility fossil generation resources to achieve greater efficiency, reliability, and flexibility to reduce renewable energy curtailment.

* Assessing the costs and merits of retiring units (with or without replacement), minimizing the amount of must-run fossil generation, and enhancing the operational flexibility of generating units to reduce costs and increase renewable energy penetration.

The analyses of resource plans and final resource plans include some analysis of the costs and benefits of the considerations identified by this Principal Issue. The analyses include consideration of modifications to existing generation units to achieve greater efficiency and flexibility, minimization of fossil and must-run generation, and providing cycling capabilities to increase effective renewable energy penetration. As noted elsewhere in this Final Certification, these analyses are not sufficiently conclusive in several respects: 45 The Companies have provided “all-in” projections of LNG prices for Oahu that include all costs associated with mainland commodity prices, liquefaction, transportation, storage and re-gasification. Costs for transportation or delivery from the port to power plant locations or storage at the power plant locations are considered separately for each resource plan. These “all-in” prices are intended to represent costs for LNG whether the HECO Companies develop re-gasification and port storage infrastructure or whether this infrastructure is developed by other entities. The fuel price projections are invariant with respect to fuel volume required by resource plans.

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• The role and functioning of utility generation units in the later years of the planning period in the final resource plans is not sufficiently considered or determined, including, for example, the extensive expected needs to ramp and cycle in a bimodal daily pattern. The ultimate ability of the measures considered to effectively accommodate assumed levels of renewable penetration has not been determined, no total required costs have been estimated, and meaningful comparative cost/benefit analysis has not been performed.

• Consideration of the retirement, deactivation or replacement of existing generation units requires further investigation.

• Findings regarding the prudence in investing in new combustion turbine technologies, including converting the CT-1 generation unit on the Oahu system to a combined cycle unit, should only be made after more thorough analysis is performed taking into consideration the utility generation system needs throughout the planning period.

19. Essential Grid Ancillary Services.

The Companies must analyze the comparative costs and benefits of:

* Implementing new technologies, measures, and strategies to decrease reliance on fossil-fuel generation resources, provide essential grid ancillary services, and accommodate expected increasing proportions of variable and/or intermittent renewable generation resources.

* Assessing the costs and merits of possible non-fossil fuel resources, technologies, or programs to provide quick-response capacity and other ancillary services—including modifying existing fossil and renewable energy generating units, customer demand response programs, and energy storage resources.

Chapter 13 of the IRP Report presents the HECO Companies’ analysis of essential ancillary services. The Companies state a policy that new technologies, measures, and strategies should be explored and utilized if they are cost-effective, reduce risk and meet several system objectives. An existing effort to analyze alternatives is identified and a four-step approach for future investigation is outlined to determine the value of ancillary services. Risks associated with providing ancillary services with non-generation resources are discussed and a cautious “measured” approach is planned to investigate some demand response and battery energy storage technologies.

In short, Chapter 13 identifies the Companies’ intent and plans to cautiously study new technologies, measures and strategies to provide ancillary services. The Chapter does not identify what possible technologies, measures or strategies might ultimately be considered, what possible magnitude or range of magnitude of ancillary service could be provided or what costs or range of costs might be associated with providing ancillary services.

Elsewhere in the IRP Report, the Companies present several stand-alone analyses of the costs and benefits of several technologies and measures to provide spinning reserves

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and to reduce curtailment of excess-energy from variable renewable resources. Analysis of a BESS resource is presented (pp. 8-48/49) that models the ability to reduce excess-energy curtailment of variable renewable generation resources. An analysis of demand response programs is presented (pp.8-34/36) that demonstrates the economy of providing system spinning reserves. These stand alone analyses demonstrate isolated benefits but do not measure the full scope of ancillary services these resources can provide.

The IRP Report also identifies several internal combustion engine (ICE) generation resources that are economical compared to other new firm generation resources (including capital, operating and maintenance costs) and that provide quick-response capacity, economical spinning reserve and other ancillary services. The ICE generation resources are included in the analysis of several resource plans and figure prominently in the final resource plans and Action Plans. The analyses of resource plans and final resource plans does not fully measure important abilities of the ICE resources to provide the economical spinning reserves, quick start capability on operational flexibility these resources can provide.

Modifications to existing fossil-fueled generation units are considered and included in the Action Plans to allow lower minimum operating levels and cycling capability in order to accommodate additional renewable generation on the utility systems.

As summarized above, the HECO Companies have provided some consideration and analysis that informs the general subject of this Principal Issue and explores some of the benefits and costs of providing necessary ancillary services by various means. Nevertheless, the Companies have not provided the analysis of comparative costs and benefits required in this Principal Issue. The Companies have, instead, identified intentions and plans to perform compliant analyses in the future.

One crucial shortcoming in the IRP Report pertains to this Principal Issue. The IRP Report fails to address the need to “accommodate expected increasing proportions of variable and/or intermittent renewable generation resources.” The final resource plans include large and unprecedented amounts of variable renewable generation that would require substantial accommodating ancillary services. The IRP Report does not address or even discuss the full magnitude of the challenges these unprecedented proportions of variable generation pose to maintaining reliable system operation. The magnitude of necessary operating reserves, ramping capability and operational flexibility overhead are not identified. Whether or how these needs can actually be provided is not analyzed or discussed. The costs associated with providing the necessary accommodating ancillary services is not identified and is not included in the characterization of the resource plans or final resource plans.

The essential grid ancillary services needed to accommodate the expected amount of variable renewable generation in the final resource plans and how these services will be provided have not been identified, quantified or accounted for in costs. Consequently, the feasibility the final resource plans has not been demonstrated and the costs are underestimated.

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More generally, the IRP Report does not answer the questions:

• What measures and investments are necessary and reasonable to enable higher levels of variable renewable generation on each island system?

• What are the best measures and costs of providing the ancillary services needed to accommodate increasing amounts of variable renewable generation on each island system?

This Principal Issue has not been meaningfully addressed.

20. Transmission Systems.

The Companies must analyze the comparative costs and benefits of adding to or modifying existing transmission and subtransmission systems to:

* Meet system and/or local load growth.

* Comply with reliability planning criteria.

* Interconnect new generation resources regardless of ownership or technology.

* Retire, with replacement, aging and antiquated grid infrastructure.

* Mitigate transmission congestion (bottlenecks).

The result of these analyses is to provide the long-term transmission capital investment requirements for the Companies. One specific question is to what extent fossil generation must operate due to lack of sufficient transmission capacity or other grid operational constraints (such as local voltage support) while solar or wind resources are being curtailed?

Chapter 14 of the IRP Report presents the HECO Companies’ transmission planning analysis. Five-year projections of transmission system needs and costs are presented for each of the five island systems under alternate load projections assumed in the planning scenarios. These projections and estimates are used in determining Action Plan projects and costs and appear to be used in the analyses of the resource plans and final resource plans.

The IRP Report does not include a comparative analysis of the costs and benefits of adding to or modifying existing transmission and distribution systems. Although some consideration has been made regarding transmission improvements that would be necessary for connecting undersea cable transmission systems to the Oahu grid, the analyses do not address needs or costs to interconnect new renewable generation resources assumed to be implemented in the final resource plans. There does not appear to be consideration of the extent to which fossil generation might have to operate due to lack of transmission, distribution or other constraints while solar or wind resources are curtailed.

At the May 1, 2013 Advisory Group meeting, the representative of the Public Benefits Fee Administrator (PBFA) clarified that energy efficiency measures can be targeted to specific geographic areas and can target specific load management objectives. This is a

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potentially valuable option that could be applied as a means to avoid or defer transmission or distribution system investments. Although the HECO Companies agreed at the May 1 meeting that it would be helpful to work cooperatively on this matter, there does not seem to be any mention in the Action Plans or elsewhere in the IRP Report to considering actions to investigate and utilize feasible and cost-effective geographically targeted energy efficiency and load management opportunities.

The IRP Report is not fully compliant with this Principal Issue.

Valid, Executable Action Plan

The Companies shall determine and demonstrate that their Action Plan represents a reasonable course of action. The Action Plan must:

* Comply with the Revised IRP Framework.

* Provide “the greatest value and flexibility across as many of the evaluated Scenarios and Resource Plans as reasonably practicable”.

* Represent a reasonable course of action.

* Be dynamic, and not fixed and unchanging. In particular, the Action Plan must be:

“Flexible enough to account for changes in planning assumptions, forecasts, and circumstances. This will allow for major decisions regarding the implementation of options (both supply-side and demand-side resources) to be made incrementally, based on the best and current available information at the time decisions are made.”

This Principal Issue clarifies requirements and expectations regarding the nature and support required for the Action Plan developed in the IRP process:

• Compliance with Framework requirements is addressed in a dedicated section of this Final Certification. The IRP Report and Action Plans do not fully comply with the Framework requirements.

• It is not clear that the Action Plans represent “the greatest value and flexibility across as many of the evaluated Scenarios and Resource Plans as reasonably practicable” or necessarily represent a reasonable course of action.

o As discussed in several sections of this Final Certification, several aspects of the Action Plan are not supported by sufficient meaningful analysis. The Action Plans (and the IRP Report more generally) do not present an overall well-analyzed, robust course of action based on clearly laid out supporting plans and alternate plans.

o There is no explicit analysis that demonstrates how the Action Plans are optimal or represent greatest value.

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o It is not explained and it is not clear whether or how the formulation of the Action Plans and the determination of the final resource plans were based on the identified planning objectives.

• It is not clear that the Action Plans provide substantial value in providing context and framing for later incremental decisions based on the best and current available information. The Action Plans do not identify how, when or by what criteria decisions between the possible alternate preferred, contingency, parallel or secondary plans will be made.46 In this respect, the Action Plans are as much ambiguous as they are flexible.

This concludes the Final Certification.

46 As clarified in a phone conference on July 16, 2013, the HECO Companies take the position that, in evaluating later resource acquisition decisions, all elements in any of the final resource plans, including elements considered but not included in the Action Plans (such as replacement of existing generation units with new more efficient generation units in circumstances where LNG is not available) would be considered to be consistent with the Action Plans. It is not clear what, if anything, might not be considered consistent with the Action Plans.

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Attachments

Final Advisory Group Comments

The Nature Conservancy July 15, 2013

Sally Kaye July 17, 2013

U.S. EPA Region 9 July 17, 2013

Consumer Advocate [Synapse] July 17, 2013

DBEDT July 17, 2013

Hawaii Solar Energy Association July 17, 2013

County of Maui July 17, 2013

Blue Planet Foundation July 17, 2013

Earthjustice July 17, 2013

Karen M. Holt July 17, 2013

Life of the Land July 17, 2013

Warren S. Bollmeier July 17, 2013