Provides a comprehensive set of measures to reduce Hawaii's dependency on fossil fuel, maximize energy efficiency, and encourage the development and use of renewable resources and alternative fuels across the State. (HD1)

A BILL FOR AN ACT

Part I.

SECTION 1. This Act is intended to comprehensively address Hawaii's decades-long overdependence on imported oil for its energy by establishing a bold, strategic energy policy framework of integrated measures to encourage and support market-based development of reliable, cost-effective, more self-reliant energy systems. The Act's integrated, coordinated, and complementary measures constitute a network of policy pathways to achieve results over the near-, mid-, and long-term. This will enable Hawaii to attain a niche leadership role in the global hydrogen energy economy and accelerate the development of the State's own indigenous, renewable energy resources.

For years, Hawaii's dependence on oil has translated into high energy prices and exposed its economy to grave vulnerability from sudden, severe oil price spikes. Presently, this dependency on fossil fuels has heightened oil supply insecurity as Hawaii's oil refiners must increasingly import crude oil from the Middle East and politically unstable oil-producing countries.

This Act provides policy mechanisms such as: a state procurement preference for biofuels and biofuel blends in diesel fuel or boiler fuel purchase contracts; and the establishment of a unique renewable fuel standard that requires twenty per cent of Hawaii's highway fuel demand to be provided by renewable fuels by 2020.

In addition, demand-side management programs, which encourage people to modify their energy use to maximize energy efficiency, have changed significantly since they were initiated nearly a decade ago in terms of how they are implemented and paid for by Hawaii ratepayers. Ratepayers may no longer be required to pay Hawaii utilities for sales of electricity lost as a result of the success of the demand-side management programs. This Act redirects those fees to provide more funds for other demand-side management programs.

This Act provides a leadership mechanism across all state agencies to ensure the achievement of ambitious energy efficiency standards for building construction and major renovations, as well as targets for energy conservation and efficiency in government-owned or leased facilities. It also provides the necessary resources to offer the technical training and support for state agencies to attain these tough certification requirements.

The State's combination of abundant renewable resources, high fossil fuel prices, limited geographic area, and recognized expertise in hydrogen research and development makes Hawaii an ideal location to lead the transition to a hydrogen economy over the long term. To accomplish this vision, this Act establishes the Hawaii renewable hydrogen program within the department of business, economic development, and tourism, and creates the Hawaii hydrogen investment capital special fund.

The purpose of this Act is to provide a comprehensive set of measures to reduce Hawaii's dependency on fossil fuel, maximize energy efficiency, and encourage the development and use of renewable resources and alternative fuels across the State. Specifically, the Act:

Part II. Alternate Transportation Fuels and Vehicles

SECTION 2. Chapter 103D, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§103D-A Biofuel preference. (a) Notwithstanding any other law to the contrary, contracts for the purchase of diesel fuel or boiler fuel shall be awarded to the lowest responsible and responsive bidders, with preference given to bids for biofuels or blends of biofuel and petroleum fuel.

(b) When purchasing fuel for use in diesel engines, the preference shall be cents per gallon of one hundred per cent biodiesel. For blends containing both biodiesel and petroleum based diesel, the preference shall be applied only to the biodiesel portion of the blend.

(c) When purchasing fuel for use in boilers, the preference shall be cents per gallon of one hundred per cent biofuel. For blends containing both biofuel and petroleum based boiler fuel, the preference shall be applied only to the biofuel portion of the blend.

(d) As used in this section, "biodiesel" means a vegetable oil based fuel, produced in Hawaii, that meets ASTM International Standard D6751, "Specification for Biodiesel Fuel Blend Stock (B100) for Distillate Fuels", as amended.

(e) As used in this section, "biofuel" means fuel produced in Hawaii from non-petroleum plant or animal-based sources that can be used for the generation of heat or power."

SECTION 3. Section 226-18, Hawaii Revised Statutes, is amended to read as follows:

"§226-18 Objectives and policies for facility systems--energy. (a) Planning for the State's facility systems with regard to energy shall be directed toward the achievement of the following objectives, giving due consideration to all:

(b) To achieve the energy objectives, it shall be the policy of this State to ensure the provision of adequate, reasonably priced, and dependable energy services to accommodate demand.

(c) To further achieve the energy objectives, it shall be the policy of this State to:

SECTION 4. Section 237-27.1, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) This section shall be repealed on December 31, [2006.] 2009."

SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $200,000, or so much thereof as may be necessary for fiscal year 2006-2007, for a statewide multi-fuel biofuels production assessment of potential feedstocks, technologies, and economics of the various renewable fuels pathways and the potential for ethanol, biodiesel, and renewable hydrogen production to contribute to Hawaii's near-, mid-, and long-term energy needs. The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this part.

Part III. Energy Efficiency and Renewable Energy

SECTION 6. There is appropriated out of the general revenues of the State of Hawaii the sum of $630,000, or so much thereof as may be necessary for fiscal year 2006–2007, to provide two full-time permanent positions within the department of business, economic development, and tourism to provide technical and other assistance and support, including training, to state agencies and programs to enable the State to meet energy efficiency goals for state facilities and vehicles. The sum appropriated shall be expended by the department of business, economic development, and tourism.

SECTION 7. Chapter 269, Hawaii Revised Statutes, is amended by adding five new sections to be appropriately designated and to read as follows:

"§269-A Public benefits fund; authorization. The public utilities commission, by order or rule, may redirect the funds collected through the current demand-side management surcharge by Hawaii's electric utilities into a public benefits fund that may be established by the commission. If the public utilities commission establishes a public benefits fund, the surcharge shall be known as the public benefits fee. The fee shall be shown separately on each customer's bill, paid to a fund administrator appointed by the public utilities commission, and deposited into the fund. Moneys in the fund shall be ratepayer funds that shall be used to support demand-side management and renewable energy programs and services that meet the requirements of section 269-92. Balances in the fund shall be carried forward and remain in the fund at the end of each fiscal year. These moneys shall not be available to meet any current or past general obligations of the State. Interest earned shall accrue to the fund.

§269-B Public benefits fund administrator; establishment. The public utilities commission shall appoint a fund administrator to operate and manage the programs established in section 269-A. The fund administrator shall not expend more than ten per cent of the fund in any fiscal year for administration of the programs established by section 269-A. The fund administrator shall report to the public utilities commission on a regular basis. The fund administration shall be delegated to a third party based upon the requirements imposed upon the public utilities commission in section 269-C. Notwithstanding any other provision of law, the fund administrator shall not be a utility or a utility affiliate.

§269-C Requirements for the public benefits fund administrator. The fund administrator shall:

§269-D Transitioning from utility demand-side management programs to the public benefits fund. If the public utilities commission establishes a public benefits fund pursuant to section 269-A, the commission shall:

SECTION 8. Section 269-1, Hawaii Revised Statutes, is amended by adding three new definitions to be appropriately inserted and to read as follows:

""Automatic adjustment clause" means a provision of a rate, charge, or practice that provides for increases and decreases, or both, and has been previously approved by the commission.

"Fuel adjustment clause" means a provision of a rate schedule that provides for increases or decreases, or both, without prior hearing, in rates and that reflects increases or decreases, or both, in costs incurred by an electric or gas utility for fuel and purchased energy due to changes in the unit cost of fuel and purchased energy.

"Fuel oil" includes all petroleum-based fuels, including but not limited to residual fuel oil, diesel fuel oil, naphtha, and other fuels refined from petroleum."

SECTION 9. Section 269-16, Hawaii Revised Statutes, is amended to read as follows:

"§269-16 Regulation of utility rates; ratemaking procedures. (a) All rates, fares, charges, classifications, schedules, rules, and practices made, charged, or observed by any public utility, or by two or more public utilities jointly, shall be just and reasonable and shall be filed with the public utilities commission. The rates, fares, classifications, charges, and rules of every public utility shall be published by the public utility in such manner as the public utilities commission may require, and copies shall be furnished to any person on request.

To the extent the contested case proceedings referred to in chapter 91 are required in any rate proceeding in order to ensure fairness and to provide due process to parties [which] that may be affected by rates approved by the commission, [such] the evidentiary hearings shall be conducted expeditiously and shall be conducted as a part of the ratemaking proceeding.

(b) No rate, fare, charge, classification, schedule, rule, or practice, other than one established pursuant to an automatic rate adjustment clause previously approved by the commission, shall be established, abandoned, modified, or departed from by any public utility, except after thirty days' notice as prescribed in section 269-12(b) to the commission and prior approval by the commission for any increases in rates, fares, or charges. The commission [may], in its discretion and for good cause shown, may allow any rate, fare, charge, classification, schedule, rule, or practice to be established, abandoned, modified, or departed from upon notice less than that provided for in section 269-12(b). A contested case hearing shall be held in connection with any increase in rates and [such] the hearing shall be preceded by a public hearing as prescribed in section 269-12(c), at which the consumers or patrons of the public utility may present testimony to the commission concerning the increase. The commission, upon notice to the public utility, may suspend the operation of all or any part of the proposed rate, fare, charge, classification, schedule, rule, or practice or any proposed abandonment or modification thereof or departure therefrom and, after a hearing, by order may regulate, fix, and change all such rates, fares, charges, classifications, schedules, rules, and practices, so that the same shall be just and reasonable and prohibit rebates and unreasonable discrimination between localities, or between users or consumers, under substantially similar conditions, regulate the manner in which the property of every public utility is operated with reference to the safety and accommodation of the public, prescribe its form and method of keeping accounts, books, and records, and its accounting system, regulate the return upon its public utility property, the incurring of indebtedness relating to its public utility business, and its financial transactions, and do all things in addition [which] that are necessary and in the exercise of [such] its power and jurisdiction, all of which as so ordered, regulated, fixed, and changed [shall be] are just and reasonable[,] and [such as shall] provide a fair return on the property of the utility actually used or useful for public utility purposes.

(c) The commission [may], in its discretion and after public hearing, upon showing by a public utility of probable entitlement and financial need, may authorize temporary increases in rates, fares, and charges; provided that the commission shall by order require the public utility to return, in the form of an adjustment to rates, fares, or charges to be billed in the future, any amounts[,] with interest, at a rate equal to the rate of return on [such] the public utility's rate base found to be reasonable by the commission, received by reason of [such] continued operation [which], that are in excess of the rates, fares, or charges finally determined to be just and reasonable by the commission. Interest on any [such] excess shall commence as of the date that any rate, fare, or charge goes into effect [which] that results in [any such] the excess and shall continue to accrue on the balance of [any such] the excess until returned.

(d) By December 31, 2007, to share the risks of reliance on oil fired generation, the commission shall determine whether to either eliminate the fuel adjustment clause or establish ratemaking provisions to amend the fuel adjustment clause so that oil cost increases and decreases are shared between utility shareholders and utility customers; provided that if the commission determines that the fuel adjustment clause should not be eliminated, it shall be amended. Ratemaking shall set the percentage of changes in fuel prices that may be automatically passed through the fuel adjustment clause.

(e) If the commission conducts ratemaking to amend the fuel adjustment clause pursuant to subsection (d), the long-term price for fossil fuels that is used to define base rates shall be consistent with the long-term price of fossil fuels that is used to determine the long-term price for renewables as defined in section 269-27.2.

[(d)] (f) The commission shall make every effort to complete its deliberations and issue its decision as expeditiously as possible and before nine months from the date the public utility filed its completed application; provided that in carrying out this mandate, the commission shall require all parties to a proceeding to comply strictly with procedural time schedules [which] that it establishes. If a decision is rendered after the nine-month period, the commission shall report in writing [report] the reasons therefor to the legislature within thirty days after rendering the decision.

Notwithstanding subsection (c), if the commission has not issued its final decision on a public utility's rate application within the nine-month period stated in this section, the commission [shall], within one month after the expiration of the nine-month period, shall render an interim decision allowing the increase in rates, fares and charges, if any, to which the commission, based on the evidentiary record before it, believes the public utility is probably entitled. The commission may postpone its interim rate decision for thirty days if the commission considers the evidentiary hearings incomplete. In the event interim rates are made effective, the commission shall by order require the public utility to return, in the form of an adjustment to rates, fares, or charges to be billed in the future, any amounts[,] with interest, at a rate equal to the rate of return on [such] the public utility's rate base found to be reasonable by the commission, received under [such] the interim rates [which], that are in excess of the rates, fares or charges finally determined to be just and reasonable by the commission. Interest on any [such] excess shall commence as of the date that any rate, fare, or charge goes into effect [which] that results in [any such] the excess and shall continue to accrue on the balance of [any such] the excess until returned.

The nine-month period in this subsection shall begin only after a completed application has been filed with the commission and a copy served on the consumer advocate. The commission shall establish standards concerning the data required to be set forth in the application in order for it to be deemed a completed application. The consumer advocate [may], within twenty-one days after receipt, may object to the sufficiency of any application, and the commission shall hear and determine any [such] objection within twenty-one days after [the same] it is filed. If the commission finds that the objections are without merit, the application shall be deemed to have been completed upon original filing. If the commission finds the application to be incomplete, it shall require the applicant to submit an amended application consistent with its findings, and the nine-month period shall not commence until the amended application is filed.

[(e)] (g) In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the State of Hawaii, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the commission may distribute, apportion, or allocate gross income, deductions, credits or allowances between or among the organizations, trades, or businesses, if it determines that the distribution, apportionment, or allocation is necessary in order to adequately reflect the income of any such organizations, trades, or businesses to carry out the regulatory duties imposed by this section.

[(f)] (h) Notwithstanding any law to the contrary, for public utilities having annual gross revenues of less than $2,000,000, the commission may make and amend its rules and procedures [which will] to provide the commission with sufficient facts necessary to determine the reasonableness of the proposed rates without unduly burdening the utility company and its customers. In the determination of the reasonableness of the proposed rates, the commission shall:

Public utilities subject to this subsection shall follow the standard chart of accounts to be approved by the commission for financial reporting purposes. The public utilities shall file a certified copy of the annual financial statements in addition to an updated chart of accounts used to maintain their financial records with the commission and consumer advocate within ninety days from the end of each calendar or fiscal year, as applicable, unless this timeframe is extended by the commission. The owner, officer, general partner, or authorized agent of the utility shall certify that the reports were prepared in accordance with the standard chart of accounts."

SECTION 10. Section 269-27.2, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) The rate payable by the public utility to the producer for the nonfossil fuel generated electricity supplied to the public utility shall be as agreed between the public utility and the supplier and as approved by the public utilities commission; provided that in the event the public utility and the supplier fail to reach an agreement for a rate, the rate shall be as prescribed by the public utilities commission according to the powers and procedures provided in this chapter.

In the exercise of its authority to determine the just and reasonable rate for the nonfossil fuel generated electricity supplied to the public utility by the producer, the commission shall establish that the rate for purchase of electricity by a public utility shall not be more than one hundred per cent of the cost avoided by the utility when the utility purchases the electrical energy rather than producing the electrical energy.

The ratemaking structure shall also include a methodology to establish prudent fifteen and twenty-year fixed prices for renewable energy power or renewable fuel for power production. The methodology shall:

SECTION 11. Section 269-91, Hawaii Revised Statutes, is amended to read as follows:

"§269-91 [[]Definitions.[]] For the purposes of this [[]part[]]:

"Cost-effective" means the ability to produce or purchase electric energy or firm capacity, or both, from renewable energy resources at or below avoided costs[.] consistent to the extent possible with the methodology set by the public utilities commission in accordance with section 269-27.2.

"Electric utility company," means a public utility as defined under section 269-1, for the production, conveyance, transmission, delivery, or furnishing of power.

"Incentive" means a financial reward established by the public utilities commission for meeting or exceeding the renewable portfolio standard in a particular year. The incentive may be paid on a per kilowatt-hour basis for renewable energy purchased from a non-utility generator for sale to utility customers, or may be an added return on capital for utility-owned renewable generation systems.

"Penalty" means a financial disincentive established by the public utilities commission for failing to meet the renewable portfolio standard in a particular year. Any penalty shall be paid from utility profits and shall not be passed on to the ratepayers.

"Renewable energy" means electrical [energy produced by wind, solar energy, hydropower, landfill gas, waste to energy, geothermal resources, ocean thermal energy conversion, wave energy, biomass, including municipal solid waste, biofuels, or fuels derived from organic sources, hydrogen fuels derived from renewable energy, or fuel cells where the fuel is derived from renewable sources.], thermal, or mechanical energy generated or produced utilizing:

Where [biofuels,] fuels, including hydrogen, [or fuel cell fuels] are produced by a combination of renewable and nonrenewable means, the proportion attributable to the renewable [means] sources shall be credited as renewable energy. Where fossil and renewable fuels are co-fired in the same generating unit, the unit shall be considered to [generate] produce renewable electricity in direct proportion to the percentage of the total heat value represented by the heat value of the renewable fuels. When a combination of fossil and renewable sources are used to charge a pumped hydro facility, the facility shall be considered to generate renewable electricity in direct proportion to the percentage of the renewable electricity to the total that is used to pump water to the upper reservoir.

"Renewable energy" also means electrical energy savings brought about by the use of renewable displacement or off-set technologies, including solar [and heat pump] water heating, seawater air-conditioning district cooling systems, solar air-conditioning, and customer-sited, net-metered and non-net-metered renewable energy systems, such as photovoltaic, wind, biomass, and hydro systems.

For purposes of this section, "renewable energy" also includes electrical energy savings resulting from the use of energy efficient technologies, such as the use of heat pump water heating, ice storage, quantifiable energy conservation measures, use of rejected heat from co-generation and combined heat and power systems, excluding fossil-fueled qualifying facilities that sell electricity to electric utility companies[,] and central station power projects.

"Renewable portfolio standard" means the percentage of electrical energy sales that is represented by renewable energy."

SECTION 12. Section 269-92, Hawaii Revised Statutes, is amended to read as follows:

"§269-92 Renewable portfolio standards. Each electric utility company that sells electricity for consumption in the State shall establish a renewable portfolio standard of:

[The public utilities commission shall determine if an electric utility company is unable to meet the renewable portfolio standards in a cost-effective manner, or as a result of circumstances beyond its control which could not have been reasonably anticipated or ameliorated. If this determination is made, the electric utility company shall be relieved of responsibility for meeting the renewable portfolio standard for the period of time that it is unable to meet the standard.] If it is determined that an electric utility company failed to meet the renewable portfolio standard, the utility shall be subject to penalties to be established by the public utilities commission."

SECTION 13. Section 269-95, Hawaii Revised Statutes, is amended to read as follows:

"[[]§269-95[]] Renewable portfolio standards study. The public utilities commission shall:

SECTION 14. Section 269-94, Hawaii Revised Statutes, is repealed.

["[§269-94 Waivers, extensions, and incentives.] Any electric utility company not meeting the renewable portfolio standard shall report to the public utilities commission within ninety days following the goal dates established in section [269-92], and provide an explanation for not meeting the renewable portfolio standard. The public utilities commission shall have the option to either grant a waiver from the renewable portfolio standard or an extension for meeting the prescribed standard.

The public utilities commission may provide incentives to encourage electric utility companies to exceed their renewable portfolio standards or to meet their renewable portfolio standards ahead of time, or both."]

SECTION 15. There is appropriated out of the general revenues of the State of Hawaii the sum of $200,000, or so much thereof as may be necessary for fiscal year 2006-2007, to complete a comprehensive inventory of state lands and offshore areas available for renewable energy, establish renewable energy resource development sub-zones, and consider streamlining the permitting for the sub-zones to encourage and facilitate renewable energy development and attract private investment. The sum appropriated shall be expended by the department of land and natural resources for the purposes of this section.

SECTION 16. There is appropriated out of the general revenues of the State of Hawaii the sum of $150,000, or so much thereof as may be necessary, for fiscal year 2006-2007 to provide assistance to the agricultural community interested in developing energy projects, especially by the production of renewable energy from energy crops or agricultural waste or other organic types of waste streams, such as municipal solid waste; provided that this shall include assistance in seeking funding available from the United States Departments of Agriculture and Energy and other external sources. The sum appropriated shall be expended by the department of agriculture for the purposes of this section.

Part IV. Hawaii Renewable Hydrogen Program

SECTION 17. The Hawaii Revised Statutes is amended by adding a new section to be appropriately designated and to read as follows:

"§___-A Hawaii renewable hydrogen program. There is established within the department of business, economic development, and tourism, a Hawaii renewable hydrogen program, to coordinate the State's transition to a renewable hydrogen economy. Towards this goal, the program shall plan, implement, and conduct activities including but not limited to:

SECTION 18. Chapter 211F, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§211F-    Hydrogen investment capital special fund. (a) There shall be established the hydrogen investment capital special fund into which shall be deposited:

(b) Moneys in the fund shall be used to:

(c) Investment of the hydrogen investment capital special fund in hydrogen projects shall be made with the advice and assistance of an advisory board of experts and knowledgeable individuals, who shall be appointed by the governor from nominees proposed by the department of business, economic development, and tourism, to help the State develop projects and partnerships with industry and the federal government.

SECTION 19. (a) There is appropriated out of the general revenues of the State of Hawaii the sum of $750,000, or so much thereof as may be necessary, for fiscal year 2006–2007 to carry out the purposes of this part, of which $250,000 shall be allocated to three permanent full-time equivalent (3.0 FTE) professional positions, including a hydrogen program manager, hydrogen program specialist, and hydrogen project specialist. The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this part.

(b) There is appropriated out of the general revenues of the State of Hawaii the sum of $10,000,000 for fiscal year 2006-2007 to be paid into the hydrogen investment capital special fund to carry out the purposes of sections 17 and 18 of this Act. The sum appropriated shall be expended by department of business, economic development, and tourism.

SECTION 20. There is appropriated out of the hydrogen investment capital special fund the sum of $10,000,000, or so much thereof as may be necessary, for fiscal year 2006–2007 to be used for the purposes of the hydrogen investment capital special fund as set forth under section 211F-   . The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this part.

Part V.

SECTION 21. The director of business, economic development, and tourism, in the director's role as both Hawaii's chief business advocate and the state energy resources coordinator, shall be responsible for facilitating and coordinating the State's efforts to implement the purposes of this Act. Accordingly, the director of business, economic development, and tourism, supported by relevant department staff, shall develop and establish formal and informal procedures and mechanisms for efficient and effective coordination and collaboration with, and among, the departments of taxation, transportation, land and natural resources, agriculture, budget and finance, and accounting and general services, and other relevant federal, state, and county government agencies and stakeholders for this purpose. State agencies named in this section and those involved at the request of the director of business, economic development, and tourism shall cooperate and provide support to the fullest possible extent to implement the purposes of this Act.

SECTION 22. In codifying the new sections added by this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 23. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 24. This Act shall take effect upon its approval; provided that sections 5, 6, 15, 16, 19, and 20 of this Act shall take effect on July 1, 2006.