HB40

SECTION 1. The legislature is aware that electric power generation in the United States is changing from a regulated to a competitive industry. Where power generation once was dominated by investor-owned utility monopolies that owned most of the generation capacity, transmission, and distribution facilities, the electric power industry now has many new non-utility companies that produce and market wholesale and retail electric power. These new companies are in direct competition with traditional electric utilities.

Several factors have caused the long-standing utility structure to shift to a more competitive structure. Consumers may reap more benefits from an industry whose members must compete for business than from an industry composed of regulated monopolies. Free markets can stabilize power costs and prices by reducing inefficiencies. Competitive industries are more likely to spur innovations with new technologies, including renewable resource technologies.

In Hawaii, average electric rates are among the highest in the nation and we rely on imported fossil fuel to meet over ninety per cent of our energy needs. Electric restructuring can help to stabilize costs, improve products and services, and encourage the generation of power from environmentally-friendly energy sources, such as solar, wind, waves, and fuel cells.

The purpose of this Act is to require the public utilities commission to open an electric restructuring docket to develop a plan for unbundling the generation, transmission, and distribution functions of Hawaii's electric utilities. Accordingly, the generation of electricity will be open to competition, while the transmission and distribution of electricity to the end-use consumer will be provided by the electric utilities.

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

"§269-A Electric restructuring; findings and declarations. The legislature finds and declares that:

(1) The provision of affordable, safe, and reliable electricity is key to the continuing growth of this State and to the health, safety, and general welfare of its residents;

(2) Rates for electricity in this State are higher than the national average;

(3) Competitive market forces can play a role in the reduction of Hawaii's electricity rates;

(4) A competitive generation market should allow customers to choose among alternative generation services and allow customers a reasonable and fair opportunity to self-generate and interconnect;

(5) Those public policy measures under current law, including but not limited to, hardship provisions, conservation measures, incentives and standards for using renewable energy resources, and net energy metering provisions, should be preserved;

(6) State rules should encourage and allow for a sufficient number of in-state generating facilities to ensure an adequate and reliable power supply within the State and ensure development of a truly competitive generation market;

(7) The assurance of safe, reliable, and available electric service to all customers in a uniform and equitable manner is an essential governmental objective and a restructured electric market must provide adequate safeguards to assure universal service and customer service protections;

(8) The generation of electricity must be achieved in a manner that does not endanger the public health or safety and that minimizes negative environmental impacts;

(9) The restructuring of the electric industry may result in a reduction in staffing levels at Hawaii generation facilities and those workers adversely affected by the restructuring should be protected; and

(10) The current method of providing electric service has involved a balancing of costs, risks, and rewards for electric utilities and their customers, and therefore, the transition to a competitive generation market, including the determination of stranded costs, should be based on the principles of fairness and reasonableness and the result of a balance of the interests of electric customers, electric utilities, and the public at large.

§269-B Electric restructuring; unbundling generation functions from transmission and distribution functions. (a) The public utilities commission shall open an electric restructuring docket to develop a plan to unbundle the generation assets, and all related operations and functions, of each electric utility company from its transmission and distribution assets, and all related operations and functions, in accordance with the legislative findings and declarations set forth in section 269-A; provided that the plan shall, among other things:

(1) Assume the continued regulation by the public utilities commission of the electric utilities with respect to their distribution and transmission assets, and all related operations and functions; provided that each electric distribution company shall:

(A) Maintain the integrity of the distribution system in conformity with the National Electric Safety Code and other standards found applicable by the commission that are practiced by the electric distribution industry, in a manner sufficient to provide safe and reliable service;

(B) Provide nondiscriminatory access of its distribution facilities to every electric supplier who is licensed pursuant to rules adopted by the commission under chapter 91; and

(C) Have the obligation to connect all customers to the company's distribution system, subject to rates, terms, and conditions as may be approved by the commission;

(2) Require the divestiture of each electric utility company's generation assets, and all related operations and functions, by a certain date and provide a strategy for the transfer of all generation assets not divested by that date that will minimize stranded costs;

(3) Provide for the buyout of all entitlements and obligations from the electric utility's existing power purchase contracts by the divestiture date described in paragraph (2) and a strategy for power purchase contracts that are not bought out by the divestiture date, such as allowing any power purchase contract that is not bought out by the divestiture date described in paragraph (2) to succeed to the electric distribution utilities for the duration of the existing contract;

(4) Mitigate stranded costs to the fullest extent possible, including requiring the electric utility to show to the satisfaction of the commission that the electric utility has taken all reasonable steps to mitigate to the maximum extent possible the total amount of stranded costs that it seeks to claim and to minimize the cost to be recovered from its customers;

(5) Require any entity supplying electric generation services to end use customers using the transmission or distribution facilities of an electric distribution company to obtain a license from the public utilities commission, in accordance with rules adopted pursuant to chapter 91, to ensure the safety and reliability of the supply of electricity in this State; provided that the public utilities commission shall not issue a license unless the applicant can demonstrate to the satisfaction of the commission that the applicant has the technical, managerial, and financial capability to provide electric generation services and provides and maintains a bond or other security in the amount and form approved by the commission to ensure its financial responsibility and its supply of electricity to end use customers in accordance with contracts, agreements, or arrangements; provided further that licenses shall be subject to periodic review by the commission;

(6) Develop a code of conduct for electric distribution companies, generation entities or affiliates, and electric suppliers by rules adopted pursuant to chapter 91; provided that the code of conduct shall become effective upon the completion of electric utility unbundling but not later than January 1, 2012; provided further that the code of conduct shall include but not be limited to:

(A) Measures to ensure information, revenues, expenses, costs, assets, liabilities, or other resources derived from or associated with providing electric transmission or distribution service by an electric distribution company are not used to subsidize any generation entity or affiliate;

(B) Safeguards to assure fair dealing between electric distribution companies and all other electric suppliers, including any generation entities or affiliates of the electric company;

(C) Procedures for ensuring electric suppliers nondiscriminatory access to the transmission and distribution facilities of the electric distribution company; and

(D) Measures to ensure that an electric distribution company provides transmission and distribution service, applies tariffs to generation entities or affiliates and to unaffiliated electric suppliers in a nondiscriminatory manner, and enforces these tariff provisions; and

(7) Allow the electric distribution companies to continue to provide power to and receive power from eligible customer-generators under the State's net energy metering program.

(b) The public utilities commission shall hold a hearing and issue its final decision and order and approved unbundling plan in the electric restructuring docket in a time frame that will allow unbundling to be accomplished by January 1, 2012. Any hearing shall be conducted as a contested case in accordance with chapter 91.

(1) A progress report on the electric restructuring docket to the legislature no later than twenty days prior to the convening of the 2008 regular session and every regular session thereafter, until the final decision and order and approved unbundling plan in the docket is issued;

(2) A final report on the electric restructuring docket to the legislature no later than twenty days prior to the convening of the regular session immediately following its issuance of the final decision and order and approved unbundling plan in the electric restructuring docket; and

(3) Proposed legislation necessary to carry out the purposes of this section to the legislature in a time frame that will allow electric utility unbundling to be accomplished by January 1, 2012."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	40
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII