Authorizes the public utilities commission to approve an automatic rate adjustment clause indexed or based on the cost or price of fuels used in the production of electricity or the cost of electrical energy purchased by the utility. Prohibits the approval of any automatic rate adjustment clause that allows an electric utility to recover more than 80 per cent of any cost or price of fuel used in the utility's production of electricity that are in excess of those costs or prices assumed in setting the most recent base rate schedule approved by the commission.

A BILL FOR AN ACT

SECTION 1. The legislature finds that the automatic rate adjustment clause (clause), also known as the energy cost adjustment clause, allows a public utility to pass on increases as well as decreases in the price of fuel oil and the cost of purchased energy to the utility's ratepayers. The legislature also finds that the original intent of the concept of the clause was to address fuel fluctuation in wartime or emergency situations, allowing public utilities to pass sudden changes in fuel prices to ratepayers. The clause was often repealed once prices stabilized.

Since present day oil prices can be extremely variable, some believe that the clause unfairly insulates public utilities from certain risks associated with fossil-fuel based resources at the expense of conservation, efficiency, and renewable technologies. Because oil price fluctuations are automatically passed on to the ratepayer, there are few incentives for the public utility to consider other options that are less susceptible to price variability than oil.

Recognizing that there will be oil price variability but that risks to the ratepayer should be avoided, the purpose of this Act is to encourage the public utilities to seek fuel price stabilization by limiting the recovery of costs or prices of fuel used in the public utility's production of electricity.

SECTION 2. Chapter 269, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§269- Automatic rate adjustment clause for electric utilities. (a) The commission may approve an automatic rate adjustment clause indexed or based upon the cost or price of fuels used in the production of electricity or the cost of electrical energy purchased by the utility. No automatic rate adjustment clause shall be approved by the commission that allows an electric utility to recover more than eighty per cent of any cost or price of fuel used in the utility's production of electricity in excess of those costs or prices assumed in setting the most recent base rate schedule approved by the commission.

(b) As used in this section, "automatic rate adjustment clause" means a provision of a rate schedule providing for increases or decreases, without prior hearing, in rates reflecting increases or decreases in fuel costs incurred by an electric utility."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval and shall apply to public utilities that submit base rate schedules to the public utilities commission after .