Hawai'i consumers could end up paying higher electricity rates if overall usage goes down under a landmark plan approved by the state Public Utilities Commission.

The PUC on Friday gave its go-ahead on a plan that would sever the amount of profits that Hawaiian Electric Co. earns from the amount of electricity that it sells.

Known as revenue decoupling, the proposal is a key part of Gov. Linda Lingle's Hawai'i Clean Energy Initiative. Advocates say it will encourage energy conservation and will stabilize HECO's revenue stream.

Currently, HECO's 400,000 customers are charged based on the amount of electricity they use.

Under decoupling, HECO would receive a guaranteed annual revenue which the company roughly estimated at $400 million. That's to cover its fixed costs, but does not include fuel and taxes.

Rates will vary depending on usage. If usage goes down, consumers will have to pay higher rates per kilowatt hour to keep HECO's revenue stable.

But HECO said that decoupling, by spurring increased use of renewable energy, could result in lower fuel costs in the long run.

"With decoupling, you remove the incentive for the utility to just sell more kilowatt hours and the incentive to generate more kilowatt hours from the power plants they own," said Alison Silverstein, a consultant to the U.S. Department of Energy who worked on the Hawai'i Clean Energy Initiative.

The PUC called for HECO and the state Division of Consumer Advocacy to come up with a final decision and order within 30 days. Such an order would provide more details on the decoupling plan and how it will be implemented.

The Hawai'i Clean Energy Initiative is part of Lingle's plan to have 70 percent of the state's energy come from clean-energy sources by 2030.

"This is an important step in helping carry out our state's energy policy," said Dick Rosenblum, HECO president and CEO.

"Ensuring the right regulatory model is in place will help move Hawai'i toward a clean energy future that will benefit customers and our economy, protect the environment, increase our energy security and allow the utility to better provide the services and support we need to get there."

The plan also calls for HECO to buy about 400 megawatts — or about a third of the company's electricity demand on O'ahu — from wind farms on Moloka'i and Lāna'i. It also requires the construction of a $1 billion cable connecting O'ahu to the Neighbor Islands.

HECO also plans to invest more than $100 million to install smart meters, which would allow the company to charge based on time of use.