Report Title:

Public Utilities Commission; Energy

Description:

Establishes a statewide energy efficiency utility and energy efficiency portfolio standards. (SD2)

THE SENATE

S.B. NO.

3185

TWENTY-THIRD LEGISLATURE, 2006

S.D. 2

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to energy.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. There have been several recent economic studies on the benefits of increasing energy efficiency and indigenous renewable energy resources as a method of stimulating local economic growth. These studies include Black and Veatch, Assessment of the Potential Impacts of a Renewable Portfolio Standard in Pennsylvania; a University of Nevada report, The Potential Economic Impact of Nevada's Renewable Energy Resources; University of Illinois, Regional Economic Applications Laboratory Report, Job Jolt: The Economic Impact of Repowering the Midwest; and Howard Geller, Energy Efficiency and Job Creation.

An energy efficiency utility is an entity that provides a comprehensive and consistent set of energy efficiency programs to electric consumers. This innovation would significantly improve upon the energy efficiency programs delivered by individual electric utilities operating in the State. This concept takes advantage of the fact that installing energy efficiency measures can cost much less per kilowatt-hour than installing new generation capacity. For example, Efficiency Vermont is an independent entity whose sole mission is energy efficiency. It provides technical advice, financial assistance, and design guidance to help make Vermont homes and businesses more energy efficient. Efficiency Vermont is funded by an "energy efficiency charge" that appears on consumers' electric bills. Efficiency Vermont was a 2003 winner of Harvard University's Kennedy School of Government's Innovations in American Government Award.

Under the current electricity rate structure, an electric utility company operates under conflicting objectives. An electric utility must sell electrons to earn a profit; however, public utility commission regulation also requires the electric utility to provide customers with energy efficiency devices designed to reduce their electricity usage.

Furthermore, electric utilities are guaranteed cost recovery plus profits for building infrastructure to meet peak demand. There are no adequate financial incentives to increase system utilization, that is, for an electric utility to flatten or level its load, which tend to be more beneficial to the rate-payer. Such a model tends to be inefficient as it overly focuses on meeting peak load rather than average load at the rate-payer's expense.

The purpose of this Act is to authorize the public utilities commission to establish an energy efficient utility and energy efficiency portfolio standard.

SECTION 2. 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 all or a portion of 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:

(1) Have experience and expertise in energy efficient and renewable energy technologies and methods;

(2) Have experience and expertise in implementing demand-side management or energy efficiency and renewable energy programs;

(3) Promote and implement programs, methods, and technologies that support energy efficiency and the use of renewable energy;

(4) Require that continued or improved efficiencies be made in the production, delivery, and use of demand-side management and renewable energy products and services;

(5) Build on the energy efficiency expertise and capabilities that have developed or may develop in the State and consult with state agency experts;

(6) Promote program initiatives, incentives, and market strategies that address the needs of individuals or businesses facing the most significant barriers to participation;

(7) Promote coordinated program delivery, including coordination with low-income home energy assistance and other demand-side management and renewable energy programs, and utility programs;

(8) Consider innovative approaches to delivering demand-side management and renewable energy products and services, including strategies to encourage third party financing and customer contributions to the cost of demand-side management and renewable energy products and services;

(9) Submit to the public utilities commission for review and approval a multi-year budget and planning cycle that promotes program improvement, program stability, and maturation of programs and delivery resources; and

(10) Be obligated to deliver its share of the renewable portfolio standard, and energy efficiency portfolio standard if an energy efficiency portfolio is established, to the extent that the fund administrator is given the responsibility and funding to implement energy efficiency and renewable energy.

§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:

(1) Develop a transition plan that ensures that utility demand-side management programs are continued until the transition date, to be established by the public utilities commission, and that the fund administrator will be able to provide demand-side management and renewable energy products and services on the transition date;

(2) Ensure that all retail electricity customers, including state and county agencies, regardless of the retail electricity or gas provider, have an opportunity to participate in and benefit from a comprehensive set of cost-effective demand-side management and renewable energy programs and initiatives designed to overcome barriers to participation;

(3) Approve programs, measures, and delivery mechanisms that reasonably reflect current and projected utility integrated resource planning, market conditions, technological options, and environmental benefits;

(4) Provide for delivery of these programs as rapidly as possible, taking into consideration the need for these services and cost-effective delivery mechanisms;

(5) Consider the unique geographic location of the State and the high costs of energy in developing programs that will promote technologies to advance energy efficiency and use of renewable energy and permit the State to take advantage of activities undertaken in other states, including the opportunity for multi-state programs;

(6) Provide for independent evaluation of programs delivered under section 269-A;

(7) Require that any entity approved by the public utilities commission under section 269-C deliver programs in an effective, efficient, timely, and competent manner and meet standards that are consistent with state policy and public utilities commission decisions;

(8) On or before January 1, 2008, and every three years thereafter, require verification by an independent auditor of the reported energy and capacity savings and incremental renewable energy production savings associated with the programs delivered by any entity appointed by the public utilities commission to deliver demand-side management and renewable energy programs under section 269-A;

(9) Enforce the fund administrator's obligation to provide its share of the renewable portfolio standard, and energy efficiency portfolio standard if an energy efficiency portfolio is established, to the extent that the fund administrator is given the responsibility and funding to implement energy efficiency and renewable energy; and

(10) If the public utilities commission determines that a fund administrator failed to meet the renewable portfolio standard, or the energy efficiency portfolio standard if an energy efficiency portfolio is established, the fund administrator shall be subject to penalties as established by the public utilities commission.

§269-E Energy efficiency portfolio standards. (a) Each electric utility company that sells electricity for consumption in the State shall achieve a statewide energy efficiency portfolio standard based on an energy efficiency ratio of:

(1) Ten per cent by December 31, 2015;

(2) Fifteen per cent by December 31, 2020; and

(3) Twenty per cent by December 31, 2025.

(b) For purposes of determining the baseline standard, the baseline shall be 2005."

SECTION 3. Section 269-91, Hawaii Revised Statutes, is amended as follows:

1. By adding nine new definitions to be appropriately inserted and to read:

""Energy efficiency" means electrical energy savings resulting from the use of energy saving devices and systems approved by the commission.

"Energy efficiency portfolio standard" means a requirement of a utility to achieve a target energy efficiency ratio in a specific year.

"Energy efficiency ratio" means the cumulative quantified demand side measures divided by net electric sales in that year.

"Energy efficiency utility" means a public utility, as defined under section 269-1, for the reduction in needed production, conveyance, transmission, delivery, or furnishing of power.

"Net electric sales" means the actual electric sales recorded on the utility system.

"Quantified demand side measures" means those utility demand side measures reported to the public utilities commission as net program impacts in megawatt hours, inclusive of all public utilities commission approved adjustment factors, such as line losses.

"Renewable energy portfolio standard" means a requirement of a utility to achieve a specific renewable energy ratio in a specific year.

"Renewable energy ratio" means the ratio of indigenous watts to total demand.

"System benefits charge" means a charge on electric bills designed to fund certain public benefits that are placed at risk in a more competitive industry, including assistance to utilities to cover integrated resource planning costs, assistance for low-income consumers, and funding renewable energy and energy efficiency research and development."

2. By amending the definition of "cost effective" to read:

""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[.], including any adjustments for risks, expected costs associated with climate change policies, and renewable energy credits."

3. By amending the definition of "renewable energy" to read:

""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, agricultural residues, animal byproducts, waste cooking oils or greases, hydrogen fuels derived from renewable energy, or fuel cells where the fuel is derived from renewable sources. Where biofuels, hydrogen, or fuel cell fuels are produced by a combination of renewable and nonrenewable means, the proportion attributable to the renewable means 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 produce renewable electricity in direct proportion to the percentage of the total heat value represented by the heat value of the renewable fuels. "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 [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] customer-sited, grid-connected renewable energy systems."

SECTION 4. Section 269-92, Hawaii Revised Statutes, is amended to read as follows:

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

[(1) Seven per cent of its net electricity sales by December 31, 2003;

(2) Eight per cent of its net electricity sales by December 31,2005;

(3)] (1) Ten per cent of its net electricity sales by December 31, 2010;

[(4)] (2) Fifteen per cent of its net electricity sales by December 31, 2015; and

[(5)] (3) Twenty per cent of its net electricity sales by December 31, 2020.

[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.]

(b) If the public utilities commission 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 5. Section 269-27.2, subsection (c), Hawaii Revised Statutes, is amended 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 commission shall require that the public utility offer to purchase electricity from the producer at prudent renewable fixed prices under a long-term agreement, subject to such exceptions as the commission may determine to be just and reasonable to the public utility consumer and in the public interest.

The commission shall also establish a methodology to establish what the fifteen and twenty-year fixed prices for renewable energy power or renewable fuel for power production shall be. The methodology shall:

(1) Establish a periodic review process for these prudent renewable fixed prices;

(2) Establish, at the public utilities commission's discretion, a competitive bidding process for renewable power, which may be integrated with other power supply or all source competitive bidding processes; and

(3) Define an advanced approval process for the procurement of long-term fixed price renewable energy sources that are competitively bid and that cost less than the prudent long-term fixed prices for renewables as defined under this section.

No later than December 31, 2007, the commission shall consider and make a determination with respect to each public utility that supplies electricity to the public, the public utility's offer to purchase electricity from producers of nonfossil fuel generated electricity at prudent renewable fixed prices under a long-term agreement, and the methodology or methodologies to be used by a public utility to determine the prudent renewable fixed prices to be offered to such producers."

SECTION 6. Section 269-95, Hawaii Revised Statutes, is amended to read as follows:

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

(1) By December 31, 2006, develop and implement a utility ratemaking structure which may include [but is not limited to] performance-based ratemaking, to provide incentives that encourage Hawaii's electric utility companies to use cost-effective renewable energy resources found in Hawaii to meet the renewable portfolio standards established in section 269-92, while allowing for deviation from the standards in the event that the standards cannot be met in a cost-ffective manner, or as a result of circumstances beyond the control of the utility which could not have been reasonably anticipated or ameliorated;

(2) Gather, review, and analyze empirical data to determine the extent to which any proposed utility ratemaking structure would impact electric utility companies' profit margins, and to ensure that [these profit margins do not decrease as a result of the implementation of the proposed ratemaking structure;] the electric utility companies' opportunity to earn a fair rate of return is not diminished;

(3) Using funds from the public utilities special fund, contract with the Hawaii natural energy institute of the University of Hawaii to conduct independent studies to be reviewed by a panel of experts from entities such as the United States Department of Energy, National Renewable Energy Laboratory, Electric Power Research Institute, Hawaii electric utility companies, environmental groups, and other similar institutions with the required expertise. These studies shall include findings and recommendations regarding:

(A) The capability of Hawaii's electric utility companies to achieve renewable portfolio standards in a cost-effective manner, and shall assess factors such as the impact on consumer rates, utility system reliability and stability, costs and availability of appropriate renewable energy resources and technologies, permitting approvals, impacts on the economy, balance of trade, culture, community, environment, land and water, climate change policies, demographics, and other factors deemed appropriate by the commission; and

(B) Projected renewable portfolio standards to be set five and ten years beyond the then current standards;

(4) Revise the standards based on the best information available at the time if the results of the studies conflict with the renewable portfolio standards established by section 269-2; and

(5) Report its findings and revisions to the renewable portfolio standards based on its own studies and those contracted under paragraph (3), to the legislature no later than twenty days before the convening of the regular session of 2009, and every five years thereafter."

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on July 1, 2050.