SCOTT SIMON, HOST:
Sixty percent of electricity in the U.S. comes from fossil fuels, like natural gas and coal. President Biden has tried to speed up the shift to cleaner energy - so far, without success. Some states are overhauling their own regulations to try to encourage the transition.
From Maui, Hawaii, Julia Simon reports.
JULIA SIMON, BYLINE: Up a dirt road past some mango trees is a solar plant. Under the panels, Hawaii utility regulator Jennifer Potter sits in the shade. It's a lot cooler out of the sun.
JENNIFER POTTER: I think, 15 degrees or so.
SIMON: Hawaii relies mostly on oil and some coal for electricity, so they need more solar like this. But this solar plant took a decade to get up and running.
POTTER: Ten years - that's problematic. We see that as being a huge issue.
SIMON: Potter says, in the past, Hawaii's regulators didn't push the utility to get solar online quickly. And so Potter and her regulator colleagues decided Hawaii needed to try something new to speed up renewables. To understand how Hawaii's changing the game, it helps to go back a century to when America's utilities were first founded.
HANNAH POLIKOV: The way it's set up is that the more that utilities build, the more money that they make.
SIMON: Hannah Polikov is managing director of Advanced Energy Economy. She says, back at the turn of the last century, we needed utilities to build lots of power plants and power lines.
POLIKOV: You know, it made a lot of sense historically when the goal was to go from zero electrification to universal electrification, right?
SIMON: But today Hawaii's regulators say this old formula is all wrong. They say pushing utilities to build, build, build doesn't fit climate goals like speeding up solar or increasing energy efficiency. And it definitely doesn't motivate the utility to shut oil and coal plants ahead of schedule.
Utility commissioner Leo Asuncion says it actually does the opposite.
LEO ASUNCION: They want to keep their plants operating as much as possible because it's in their best interest in that formula.
SIMON: Hawaii's regulators realized they needed a new formula, with a profit motive, for utilities to do things like close coal and oil plants.
POTTER: Otherwise, they have no incentive at all to do that. I mean, why would they do it? So you have to provide them with something.
SIMON: So on June 1, Hawaii officially kicked off performance-based regulation. Under this new model, the utility's profits are no longer tied to how much they build or the value of their infrastructure. Instead, profits are tied to goals drafted by regulators and community stakeholders - goals like increasing renewables, piloting electric vehicle infrastructure and cutting customer bills. Hawaii has the highest rates in the U.S. - now if the utilities reach the goals, profits - if they don't, sometimes penalties.
JIM KELLY: Carrots and sticks, carrots and sticks - yeah.
SIMON: Jim Kelly, vice president at Hawaiian Electric - he argues the utility was getting renewables online long before these reforms. But he says these new incentives make the goal lines more clear, like for solar installs.
KELLY: A really important measure for us - and that's something that there is an incentive and a penalty attached to. It's something that's got to get done.
SIMON: Potter says it's got to get done because there's a lot of money at stake.
POTTER: If you do change your behavior for the positive, then you have an opportunity to get several million more dollars. I mean, there's millions of dollars on the table for the company right now.
SIMON: Before the reforms, Hawaii's regulators were nervous how the utility's investors would react. But even before the official launch, S&P and Moody's upgraded their rating for Hawaiian Electric. Moody's tells NPR that's because new incentive structures like this often produce better earnings for utilities and set them up better for climate change and the green transition.
Kelly at Hawaiian Electric says when other utilities ask him about performance-based regulation, he tells them...
KELLY: It's going to happen. If you think that you can put it off, maybe you can for a few years. But it's probably going to happen in some form or another.
SIMON: Potter says lately she gets lots of calls from regulators on the mainland as more and more states - from Connecticut to Illinois to Nevada - look to this kind of utility reform.
For NPR News, I'm Julia Simon, Maui.
(SOUNDBITE OF LORDE SONG, "SOLAR POWER")
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.