HB2041.DOC

SECTION 1. The legislature finds that it is critical to the State's energy security and energy independence to hasten the transition to nonfossil fuels as a source for generating electricity. However, existing power purchase agreements between electric utility companies and producers of electricity generated from nonfossil fuels or geothermal steam frequently contain terms that are counterproductive to this goal and which may continue to perpetuate the use of fossil fuels in Hawaii. For example, many power purchase agreements contain terms that allow an electric utility to curtail the amount of electricity that it purchases from a supplier. This has the effect of limiting the electricity purchased from nonfossil fuel generators in favor of electricity generated by the utility's own fossil fuel power plants. This creates profits for the electric utility at the expense of Hawaii's nascent alternative energy industry and utility ratepayers. Another example of regressive contract terms are exclusivity provisions that restrict nonfossil fuel electricity generators or geothermal electricity generators from selling electricity to purchasers other than the electric utility company. This practice prevents alternative energy generators from realizing their full production and profit potential by selling excess electrical capacity to private electricity purchasers.

The public utilities commission is currently authorized to approve the rates that electric utilities pay for electricity produced by nonfossil fuel generators of electricity and geothermal generators of electricity. The legislature finds that other contract terms, such as curtailment or exclusivity provisions, that are often contained in power purchase agreements also have a direct effect on the electricity rates that are paid by the public. In addition, these terms may slow the State's transition to alternative sources of electricity and delay the State's energy security and independence from costly imported fossil fuels.

The purpose of this Act is to prohibit any provision of a power purchase agreement between an electric utility and a producer of electricity generated from nonfossil fuels or geothermal steam that curtails the amount of electricity that may be purchased or prohibits the producer from selling electricity other than to the utility.

SECTION 2. Section 269-27.1, Hawaii Revised Statutes, is amended to read as follows:

"[[]§269-27.1[]] Establishment of geothermal energy rates. (a) The rate payable by a public utility to the producer of geothermal steam or electricity generated from geothermal steam shall be established by agreement between the public utility and the supplier, subject to approval by the public utilities commission; provided that if the public utility and the supplier fail to reach an agreement for such rate, or if the agreed upon rate is disapproved by the commission, the public utilities commission shall establish a just and reasonable rate for the geothermal steam or electricity generated from geothermal steam supplied to the public utility by the producer.

(b) The producer of geothermal steam or electricity generated from geothermal steam shall be excluded from coverage of the term "public utility" as defined in section 269-1.

(c) No agreement for the purchase of electricity generated from geothermal steam by an electric utility company from a producer of geothermal steam shall contain provisions that:

(1) Limit or curtail the amount of electricity generated from geothermal steam that may be purchased from the producer by the electric utility; or

(2) Prohibit the producer from selling electricity generated from geothermal steam to purchasers other than the electric utility;

except in an emergency situation that imminently threatens the stability of the electrical grid or due to a natural or manmade disaster."

SECTION 2. Section 269-27.2, Hawaii Revised Statutes, is amended to read as follows:

"§269-27.2 Utilization of electricity generated from nonfossil fuels. (a) The public utilities commission shall investigate and determine the extent to which electricity generated from nonfossil fuel sources is available to public utilities that supply electricity to the public, which electricity is in excess of that utilized or otherwise needed by the producers for their internal uses and which the producers are willing to make available to the electric public utilities.

(b) The public utilities commission may direct public utilities that supply electricity to the public to arrange for the acquisition of and to acquire electricity generated from nonfossil fuel sources as is available from and the producers are willing and able to make available to the public utilities, and to employ and dispatch the nonfossil fuel generated electricity in a manner consistent with the availability thereof to maximize the reduction in consumption of fossil fuels in the generation of electricity to be provided to the public. To assist the energy resources coordinator in effectuating the purposes of chapter 201N, the public utilities commission may develop reasonable guidelines and timetables for the creation and implementation of power purchase agreements.

(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.

The commission's determination of the just and reasonable rate shall be accomplished by establishing a methodology that removes or significantly reduces any linkage between the price of fossil fuels and the rate for the nonfossil fuel generated electricity to potentially enable utility customers to share in the benefits of fuel cost savings resulting from the use of nonfossil fuel generated electricity. As the commission deems appropriate, the just and reasonable rate for nonfossil fuel generated electricity supplied to the public utility by the producer may include mechanisms for reasonable and appropriate incremental adjustments, such as adjustments linked to consumer price indices for inflation or other acceptable adjustment mechanisms.

(d) Upon application of a public utility that supplies electricity to the public, and notification of its customers, the commission, after an evidentiary hearing, may allow payments made by the public utility to nonfossil fuel producers for firm capacity and related revenue taxes to be recovered by the public utility through an interim increase in rates until the effective date of the rate change approved by the commission's final decision in the public utility's next general rate proceeding under section 269-16, notwithstanding any requirements to the contrary of any other provision in this chapter or in the commission's rules or practices; provided the amount recovered by the utility and the amount of increase in rates due to the payments for firm capacity and related revenue taxes to be charged to the consumers of the electricity are found by the commission to be:

(1) Just and reasonable;

(2) Not unduly prejudicial to the customers of the public utility;

(3) Promotional of Hawaii's long-term objective of energy self-sufficiency;

(4) Encouraging to the maintenance or development of nonfossil fueled sources of electrical energy; and

(5) In the overall best interest of the general public.

The evidentiary hearing provided for in this subsection shall be conducted expeditiously and shall be limited to evidence related to the above findings. Notwithstanding section 269-16, no public hearing shall be required, except as the commission in its discretion may require.

(e) No agreement for the purchase of electricity generated from nonfossil fuel sources by an electric utility company from a producer of electricity from nonfossil fuel sources shall contain provisions that:

(1) Limit or curtail the amount of electricity generated from nonfossil fuel sources that may be purchased from the producer by the electric utility; or

(2) Prohibit the producer from selling electricity generated from nonfossil fuel sources to purchasers other than the electric utility;

except in an emergency situation that imminently threatens the stability of the electrical grid or due to a natural or manmade disaster."

SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

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

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2041
TWENTY-SIXTH LEGISLATURE, 2012
STATE OF HAWAII