SB390.DOC

SECTION 1. The legislature finds that solar water heating systems provide numerous financial, economic, and environmental benefits to Hawaii's residents, businesses, electric utility companies, and to the State itself. Solar water heating systems that are appropriate for the Hawaiian Islands have design lives in excess of fifteen years and can reduce the average homeowner's monthly electric bill by thirty to fifty per cent. The State of Hawaii annually exports between three and seven billion dollars to import fossil fuels. By using the sun instead of expensive and polluting fossil fuel to heat water, Hawaii immediately benefits from one of its best and least expensive import substitution opportunities.

A conventional solar water heating system will save an average of four barrels of imported oil each year over its useful operating life. With approximately 100,000 solar systems now in service in Hawaii, the annual energy savings at $50/per barrel of oil is $20,000,000. These savings increase annually as new systems are installed or as energy prices increase. Of equal importance, this money remains in the local economy supporting job growth, consumer spending, and new business investment. Hawaii's installed base of solar water heating systems annually mitigates thousands of tons of carbon dioxide (CO2), sulfur dioxide (SO2), nitrogen oxide (NOX), and airborne particulate matter (PM10) that contributes to both global climate change and local air quality.

The legislature finds that the State of Hawaii leads the nation in the per-capita installation of solar water heating systems. Since 1996, the Hawaiian Electric Industries' group of electric utility companies, pursuant to the public utilities commission's directives, has sponsored the nation's most effective and successful residential solar water heating programs for both existing homes and new construction by providing rebates for over forty thousand systems. In 2007, nearly half of the installed solar water heating systems in the United States were installed in Hawaii. Over thirty-five per cent of these installations were installed in new homes and the trend line is quickly accelerating in this area.

The primary reason for Hawaii's predominance in solar water heating has been the State's consistent support of renewable energy utilization and development. Since 1976, when Act 189 first established Hawaii's energy conservation income tax credits, the legislature has understood the importance of consistent energy policy in developing and maintaining the renewable energy industry infrastructure required to deliver the products and services necessary to effect change in this area.

While the federal and other state governments have wavered in their commitment to renewable energy development over the past thirty years, primarily at times when oil prices have been low, the legislature has remained cognizant of the seamless interrelationship in Hawaii between energy prices and the overall health of the State's economy and environment.

Given Hawaii's nearly complete dependence on imported oil, and in recognition of the fact that oil prices remain highly volatile, the legislature finds that the State must move with all due haste and determination to make all of Hawaii's new and existing homes and buildings, including state and county government buildings, significantly more energy efficient. There are many ways to do this, including the continuation of cost-effective market mechanisms like tax credits and utility and third-party demand-side management rebates.

Finding an expeditious path to reducing dependence of the State upon fossil fuel consumption, the legislature in 2008 enacted Act 204 to require the installation of solar water heating systems for all new single-family dwellings constructed after December 31, 2009.

The legislature finds that for public policy to be truly successful, the outcome must lead to a quantifiable increase in energy savings from mandated solar water heating systems as measured in kilowatt hours (kWh) and utility system capacity benefits as measured in kilowatts (kW). The kW capacity benefit plays an important role in electric utility company generation planning and in delaying the necessity of adding costly new utility generation plants. To achieve this purpose, the required solar water heating systems must provide nominal energy savings (kWh) of no less than ninety per cent of the fossil energy required by a conventional electric water heater.

Solar water heating systems also shall be designed and installed in accordance with prescriptive guidelines that deliver the quantitative benefits (kWh savings) outlined above to both the ratepayer and the electric utility company for no less than fifteen years. The vast majority of the solar water heating systems installed within the electric utility company demand-side management programs since 1995, will last far longer than fifteen years with minimal maintenance.

System longevity must be assured by the establishment of rigorous component and equipment standards that protect ratepayers from both substandard products and specious performance claims. Comprehensive third-party system inspections such as those presently conducted by the electric utility companies shall be maintained to verify adherence to the established performance and prescriptive standards and specifications.

The purpose of this Act is to clarify provisions of Act 204, Session Laws of Hawaii 2008, and to limit to an absolute minimum the circumstances by which a fossil fuel fired water heater of any type may be substituted. It is intended that the variances provided for in this Act should be rarely if ever exercised or granted. The overwhelming burden of proof shall lie on the applicant for a variance to prove that a solar water heating system in the Hawaiian Islands, regardless of location or circumstances, is not cost effective in the context of a thirty-year mortgage term. This requires the use of realistic assumptions about interest rates, discount rates, inflation rates, and the expected average cost of electricity by island over the thirty-year period, regardless of the cost of electricity, or of oil or some other fossil fuel, at a specific point in time.

The legislature further finds that the continuation of the popular and cost-effective renewable energy, technologies income tax credit shall remain available for all single-family dwellings built before January 1, 2010.

SECTION 2. Section 196-6.5, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) On or after January 1, 2010, no building permit shall be issued for a new single-family dwelling that does not include a solar water heater system [~~that~~] which meets the standards established pursuant to section 269-44, unless the [~~energy resources coordinator~~] public benefits fee administrator approves a variance. The public benefits fee administrator shall prescribe and publish objective criteria for variances allowed under this subsection. A variance application shall only be [~~approved~~] accepted if submitted by an architect or mechanical engineer licensed under chapter 464 who attests that:

(1) Installation is impracticable due to poor solar resource;

(2) Installation is cost-prohibitive based upon a life cycle cost-benefit analysis that incorporates the average residential utility bill and the cost of the new solar water heater system with a life cycle that does not exceed fifteen years; or

(3) A substitute renewable energy technology system, as defined in section 235-12.5, is used as the primary energy source for heating water[~~; or~~

~~(4)~~ A demand water heater device approved by Underwriters Laboratories, Inc., is installed; provided that at least one other gas appliance is installed in the dwelling. For the purposes of this paragraph, "demand water heater" means a gas-tankless instantaneous water heater that provides hot water only as it is needed].

(b) A request for a variance shall be submitted to the [~~energy resources coordinator~~] public benefits fee administrator on an application prescribed by the [~~energy resources coordinator~~] public benefits fee administrator and shall include, but not be limited to, a description of the location of the property and justification for the approval of a variance using the criteria established in subsection (a). A variance shall be deemed approved if not denied within thirty working days after receipt of the variance application. The public benefits fee administrator shall make public:

(1) All applications for a variance within seven days after receipt of the variance application; and

(2) The deposition of all applications for a variance within seven days of the determination on the variance application."

SECTION 3. Section 235-12.5, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) When the requirements of subsection (c) are met, each individual or corporate taxpayer that files an individual or corporate net income tax return for a taxable year may claim a tax credit under this section against the Hawaii state individual or corporate net income tax. The tax credit may be claimed for every eligible renewable energy technology system that is installed and placed in service in the State by a taxpayer during the taxable year. This credit shall be available for systems installed and placed in service in the State after June 30, 2003. The tax credit may be claimed as follows:

(1) Solar thermal energy systems for:

(A) Single-family residential property for which a building permit for a single-family dwelling was issued prior to January 1, 2010: thirty-five per cent of the actual cost or $2,250, whichever is less;

(B) Multi-family residential property: thirty-five per cent of the actual cost or $350 per unit, whichever is less; and

(2) Wind-powered energy systems for:

(A) Single-family residential property: twenty per cent of the actual cost or $1,500, whichever is less[;], unless all or a portion of the system is used to fulfill the substitute renewable energy requirement pursuant to section 196-6.5(a)(3), then the credit shall be reduced by twenty per cent of the actual system cost or $1,500, whichever is less;

(B) Multi-family residential property: twenty per cent of the actual cost or $200 per unit, whichever is less; and

(3) Photovoltaic energy systems for:

(A) Single-family residential property: thirty-five per cent of the actual cost or $5,000, whichever is less[;], unless all or a portion of the system is used to fulfill the substitute renewal energy requirement pursuant to section 196-6.5(a)(3), then the credit is reduced by thirty five per cent of the actual system cost or $2,250, whichever is less;

(B) Multi-family residential property: thirty-five per cent of the actual cost or $350 per unit, whichever is less; and

provided that multiple owners of a single system shall be entitled to a single tax credit; and provided further that the tax credit shall be apportioned between the owners in proportion to their contribution to the cost of the system.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every eligible renewable energy technology system that is installed and placed in service in the State by the entity. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to section 235-110.7(a)."

SECTION 4. Section 269-44, Hawaii Revised Statutes, is amended to read as follows:

"[[]§269-44[]] Solar water heater system standards. (a) Not later than July 1, 2009, or as soon as reasonably practicable, the public utilities commission shall adopt or establish by rule, tariff, or order, standards for solar water heater systems to include, but not be limited to, specifications for the performance, materials, components, durability, longevity, proper sizing, installation, and quality to promote the objectives of section 269-124.

(b) The public utilities commission, to the extent reasonably practicable, shall harmonize its standards for solar water heating systems with those adopted or established by the public benefits fee administrator.

(c) The public utilities commission shall use a portion of the moneys collected by Hawaii's electric utilities from its ratepayers through a demand-side management surcharge to support compliance with subsection (a) in the form of post-installation verification inspections of the water heating technology installed pursuant section 196.5."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act, upon its approval, shall take effect retroactive to January 1, 2009.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	390
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII