Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Energy & Environmental Protection, to which was referred H.B. No. 410, H.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure is to provide a tax credit against the income, general excise, and fuel tax for qualified expenditures incurred in converting a fuel storage terminal for the importation, storage, and blending of ethanol with gasoline.

Your Committee finds that this subject matter warrants further discussion and will defer to the Committee on Finance to consider the fiscal ramifications of this proposal in order to get a better understanding of the total impact on state revenues if this tax credit is implemented.

Your Committee notes that Mid Pac Petroleum, LLC testified that its estimated cost to convert a terminal at Kawaihae, Hawaii, would be $200,000. Aloha Petroleum, Ltd. estimated its cost to convert two terminals, at Barbers Point and Hilo, and its service stations to be $2,000,000. Further, in estimating ethanol infrastructure requirements, Stillwater Associates reports in its Hawaii Ethanol Alternatives study that: "All in all, total capital of $10,000,000 and local distribution costs of nine cents a gallon (to convert facilities statewide) are not unreasonable, and are in fact well below some estimates communicated by industry stakeholders which ranged from $10,000,000 to $20,000,000."

Your Committee further notes that the Legislature has already provided tax credit incentives for the development of qualifying ethanol production facilities that prohibit a taxpayer from claiming or receiving any other income tax credit relating to the development of the qualifying ethanol production facility. The Legislature has also provided further incentives to offset the cost of converting facilities by reducing the fuel tax on ethanol sold in the State.

As affirmed by the record of votes of the members of your Committee on Energy & Environmental Protection that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 410, H.D. 1, and recommends that it pass Second Reading and be referred to the Committee on Finance.