SB1173 HD2.DOC

SECTION 1. In January 2008, the United States Department of Energy and the State of Hawaii signed a Memorandum of Understanding to strengthen cooperation to implement clean energy technologies that will increase energy-efficiency and maximize use of the State's vast and abundant renewable resources. The legislature finds that the establishment of this long-term partnership, called the Hawaii Clean Energy Initiative, is designed to transform Hawaii's energy system into one that uses renewable energy and energy-efficient technologies for a significant portion of its energy needs. The partnership aims to put Hawaii on a path to supply seventy per cent of its energy needs using clean energy by 2030, which can significantly reduce Hawaii's current crude oil consumption. This type of clean energy transformation will help to stabilize and strengthen Hawaii's economy by reducing its dependency on imported fossil fuels and protect its environment by sharply reducing greenhouse gas emissions.

The United States Department of Energy, as a leader in clean energy technologies, is working with the State of Hawaii to further the potential of its natural resources, including wind, sun, and bioenergy resources, and engage experts in clean energy technology development to help Hawaii launch projects in conjunction with public and private sector partners that target opportunities and address critical needs for Hawaii's transition to a clean energy economy, including:

(1) Designing cost-effective approaches for the exclusive use of renewable energy on smaller islands;

(2) Designing systems to improve the stability of electric grids operating with variable generating sources, such as wind power plants on the islands of Hawaii and Maui;

(3) Minimizing energy use while maximizing energy-efficiency and renewable energy technologies at new large military housing developments;

(4) Expanding Hawaii's capability to use locally-grown crops and byproducts for producing fuel and electricity; and

(5) Assisting in the development of comprehensive energy regulatory and policy frameworks for promoting clean energy technology use.

Similar to the establishment of a renewable energy portfolio standard, an energy-efficiency portfolio standard sets a target of electricity-use reduction to be achieved in incremental stages, as end-use energy-efficiency programs can make a significant and cost-effective contribution to achieving the goals and objectives of the Hawaii Clean Energy Initiative.

The purpose of this Act is to maximize cost-effective energy-efficiency programs and technologies to achieve electricity-use reductions to the maximum extent feasible by establishing an energy-efficiency portfolio standard, making public buildings more energy-efficient, disclosing a property's energy consumption at the time of sale, and providing a tax credit for net-zero energy buildings, to achieve electricity use reductions to the maximum extent feasible.

SECTION 2. The Hawaii Revised Statutes is amended by adding three new sections to be appropriately designated and to read as follows:

"§ ‑ Energy-efficiency portfolio standards. (a) The public utilities commission shall establish energy-efficiency portfolio standards that will maximize cost-effective energy-efficiency programs and technologies.

(b) The energy-efficiency portfolio standards shall be designed to achieve four thousand three hundred gigawatt hours of electricity use reductions statewide by 2030; provided that the commission shall establish interim goals for electricity use reduction to be achieved by 2015, 2020, and 2025 and may also adjust the 2030 standard by rule or order to maximize cost-effective energy-efficiency programs and technologies.

(c) The commission shall establish incentives and penalties based on performance in achieving the energy-efficiency portfolio standards by rule or order.

(d) The public utilities commission shall evaluate the energy-efficiency portfolio standard every five years, beginning in 2013, and may revise the standard, based on the best information available at the time, to determine if the energy-efficiency portfolio standard established by this section remains achievable. The commission shall report its findings and revisions to the energy-efficiency portfolio standard, based on its own studies and other information, to the legislature no later than twenty days before the convening of the regular session of 2014, and every five years thereafter.

(e) Beginning in 2015, electric energy savings brought about by the use of renewable displacement or off-set technologies, including solar water heating and seawater air conditioning district cooling systems, shall count toward this standard.

(f) An electric utility company and its electric utility affiliates may aggregate their efficiency portfolios to achieve the energy-efficiency portfolio standard.

§ ‑ Public buildings; benchmarks; retro-commissioning guidelines; energy savings performance contracts. (a) By December 31, 2010, each state department with responsibilities for the design and construction of public buildings and facilities shall benchmark every existing public building that is either larger than five thousand square feet or uses more than eight thousand kilowatt-hours of electricity or energy per year and shall use the benchmark as a basis in determining the State's investment in improving the efficiency of its own building stock. Benchmarking shall be conducted using the ENERGY STAR portfolio management tool or an equivalent tool. The energy resources coordinator shall provide training to affected departments on the ENERGY STAR portfolio management tool or an equivalent tool.

(b) Public buildings shall be retro-commissioned not less than every five years. The energy resources coordinator shall establish retro-commissioning guidelines by January 1, 2010.

(c) Departments may enter into energy savings performance contracts with a third party to cover the capital costs of energy-efficiency measures and distributed generation as long as the terms of the energy savings performance contracts conform to the benchmark standard. The comptroller may review and exempt specific projects as appropriate to take into account cost-effectiveness.

Energy savings performance contracts shall be executed according to state guidelines issued by the comptroller, and the contracts shall be reviewed by the comptroller. To expedite energy saving performance contracting for public buildings, the department of accounting and general services shall develop a master energy savings performance contracts agreement that any department may use to contract with an energy savings performance contracts provider for energy-efficiency and renewable energy services.

(d) Existing public buildings that undergo a major retrofit or renovation shall make investments in efficiency; provided that the cost of the measures shall be recouped within twenty years.

§ ‑ Energy-efficiency consumer information in sale or lease of real property. (a) Prior to the sale or leasing of property, property owners and lessors shall provide utility bills for the most recent three-month period in which the property was occupied; provided that if the property has no utility accounts associated with it, the property owner or lessor is exempt from meeting this requirement.

(b) The energy resources coordinator shall develop guidelines for format and content to assist the seller or lessor in providing the information required in subsection (a)."

SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235‑ Tax credit for a net-zero energy building. (a) There shall be allowed to each taxpayer who owns a net-zero energy building affixed to real property located in the state, an income tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter only for the first taxable year in which the building meets the definition of net-zero energy building.

(b) The amount of the credit shall be:

(1) For a building that is up to and including one thousand square feet, the tax credit shall be $9 per square foot;

(2) For a building that is more than one thousand square feet but less than four thousand square feet, the tax credit shall be $6 per square foot;

(3) For a building that is four thousand square feet or larger, the tax credit shall be $3 per square foot for a maximum credit of $50,000.

(c) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every net-zero energy building owned by the entity. Distribution and share of the credit shall be determined pursuant to section 235-110.7(a).

In the case of a building owned by more than one person, the tax credit shall be determined as if owned by one person, and then apportioned among the various owners in proportion to their ownership interest in the building.

(d) The director of taxation shall prepare any forms that may be necessary to claim a tax credit under this section. The director of taxation may require the taxpayer to furnish reasonable information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(e) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims for the tax credit under this section, including amended claims, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with this subsection shall constitute a waiver of the right to claim the credit.

(f) This section shall apply to taxable years beginning after December 31, 2009, and shall not apply to taxable years beginning after December 31, 2019.

(g) Taxpayers claiming tax credits for renewable energy systems under this section are not eligible for tax credits under section 235-12.5.

(h) If, during any taxable year, a net-zero energy building ceases to be a net-zero energy building and is owned by the taxpayer who claimed the tax credit, then the tax credit shall be recaptured. To recapture, the taxpayer shall add to taxable income, for the taxable year in which the building ceases to be a net-zero energy building, the amount of the recapture percentage of the credits allowed and claimed under this section.

For the purposes of this subsection, if the property ceases to be a net-zero energy building within the time specified, then the recapture percentage is:

(1) One full year after the taxable year in which the credit is claimed: One hundred per cent;

(2) One full year after the close of the period described in paragraph (1): Eighty per cent;

(3) One full year after the close of the period described in paragraph (2): Sixty per cent;

(4) One full year after the close of the period described in paragraph (3): Forty per cent; and

(5) One full year after the close of the period described in paragraph (4): Twenty per cent.

(i) If a deduction is taken under Section 179 (relating to the election to expense certain depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the cost for which the deduction is taken.

(j) The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.

(k) For purposes of this section:

"Net-zero energy building" means any building that produces more electricity from renewable energy technology systems than it consumes from all sources on a monthly basis during any nine months of the tax year.

"Renewable energy technology system" means a system that captures and converts a renewable source of energy into electricity."

SECTION 4. Section 269-123, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The public benefits fee administrator's duties and responsibilities shall be established by the public utilities commission by rule or order, and may include:

(1) Identifying, developing, administering, promoting, implementing, and evaluating programs, methods, and technologies that support energy-efficiency and demand-side management programs;

(2) Encouraging the continuance or improvement of efficiencies made in the production, delivery, and use of energy-efficiency and demand-side management programs and services;

(3) Using the energy-efficiency expertise and capabilities that have developed or may develop in the State and consulting with state agency experts;

(4) Promoting program initiatives, incentives, and market strategies that address the needs of persons facing the most significant barriers to participation;

(5) Promoting coordinated program delivery, including coordination with electric public utilities regarding the delivery of low-income home energy assistance, other demand-side management or energy-efficiency programs, and any utility programs;

(6) Consideration of innovative approaches to delivering demand-side management and energy-efficiency services, including strategies to encourage third-party financing and customer contributions to the cost of demand-side management and energy-efficiency services; [~~and~~]

(7) Conducting energy-efficiency assessments to identify current energy use patterns in the state and areas of greatest potential for energy savings. The assessments shall include end-use research regarding Hawaii's homes, businesses, and other utility customers. The energy-efficiency assessments shall help the public benefits fee administrator to identify and recommend energy-efficiency programs to target. The energy-efficiency assessments shall be forwarded to the legislature, the public utilities commission, the energy resources coordinator, and the electric public utilities;

(8) Establishing aggressive energy-efficiency plans with the provision that efficiency shall be the first loaded resource in all cases where it is cost-effective. For the purposes of this paragraph, "cost-effective" means that all resources are deemed to effectively cover the incremental cost of investment within fifteen years, when measured against average electricity rates for residential, small commercial, large commercial, industrial, and agricultural customers;

(9) Establishing on-bill financing programs to promote and encourage the consumer acquisition of more efficient major electrical appliances, solar water heaters, and photovoltaic systems;

[~~(7)~~] (10) Submitting, 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[.];

(11) Conducting building code analysis and review and developing and implementing recommendations including:

(A) Instituting procedures for, and measurement and verification of, buildings and homes constructed under the building code to assess building code compliance and building performance. The results will provide information on necessary changes that should be implemented to the building code and in the delivery of building code training;

(B) Conducting analysis of the energy intensity of residential and commercial buildings built pursuant to the building code compared to baseline homes;

(C) Surveying builders to determine costs associated with meeting building code requirements for residential and commercial buildings;

(D) Delivering the results of these analyses and surveys to the public utilities commission annually, the results of which shall include recommendations for building code updates to be provided to the state building code council as petitions for rules changes;

(E) Assessing the feasibility of implementing a net‑zero energy building code for residential and commercial construction;

(F) Recommending technical amendments to the international energy conservation code to take advantage of Hawaii's climate;

(G) Evaluating the costs and benefits of requiring:

(i) Advanced meters and energy "dashboard" technologies that improve the ability of the occupant to monitor and improve building performance;

(ii) Cool roof standards;

(iii) Roofs of new homes to be solar-ready;

(iv) All homes built or rehabilitated in the state to have and present an energy label; and

(v) Any other measures that will improve the ability of the homeowner to better understand and manage the homeowner's energy use;

and

(H) Establishing building energy-efficiency commissioning guidelines appropriate for building practices, including recommending enforcement mechanisms in the state by January 1, 2010;

(12) Establishing programs and information to educate financial institutions, mortgage brokers, and consumers on the economics of energy-efficient properties, including savings over the life-cycle of the properties; and

(13) Processing variances from solar water heater installations required under chapter 196."

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

SECTION 6. This Act shall take effect on January 1, 2090.

THE SENATE	S.B. NO.	1173
TWENTY-FIFTH LEGISLATURE, 2009		S.D. 2
STATE OF HAWAII		H.D. 2