Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Water, Land, Energy and Environment, to which was referred S.B. No. 2030 entitled:

begs leave to report as follows:

The purpose of this measure is to prohibit the Public Utilities Commission from approving a public utility rule, standard, or guideline that establishes a standby charge for a nonutility generator.

Testimony in support of this measure was received from the Department of Business, Economic Development, and Tourism (DBED&T), The Gas Company, Hui `Enekinia Hawai`i, ILWU Local 142, Hawaii Hotel Association, Starwood Hotels and Resorts in Hawaii, Sierra Club Hawai`i Chapter, Life of the Land, and one individual. The Public Utilities Commission, Hawaiian Electric Company, Inc., and Kauai Electric testified in opposition. One individual submitted comments.

Your Committee finds that a standby charge is a disincentive to nonutility distributed energy resources, and that such charges may not consider potential benefits of the nonutility generator to the utility system. In fact, increased activity by nonutility generators offers advantages to the customer self-generators and to Hawaii's centralized electricity grids through greater reliability and improved power quality, opportunities for fuel diversity and renewable energy use, geographic dispersion of generation, reduction of transmission line losses by location at the user's site, greater efficiency, and lower cost electricity when compared to central station utility power.

Despite these advantages, the current standby charges are a serious impediment to companies interested in making an investment in cogeneration. Your Committee has heard of charges of as much as $100,000 a year – a magnitude that can change the economics of any project.

Your Committee understands that DBEDT currently is conducting a study of "Distributed Energy Opportunities in Hawaii" under a grant from the U.S. Department of Energy, which is scheduled for completion in late 2002. It will provide an analysis of the potential market for distributed energy resources and the barriers, such as high standby charges and customer retention discounts.

Your Committee looks forward to the completion of this valuable report and any recommendations regarding the removal of barriers. However, your Committee believes that further discussion of the prohibition in this measure is merited and is passing the measure out for this purpose.

As affirmed by the record of votes of the members of your Committee on Water, Land, Energy and Environment that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2030 and recommends that it pass Second Reading and be referred to the Committee on Commerce, Consumer Protection and Housing.