HB550 HD1

SECTION 1. The legislature finds that Act 97, Session Laws of Hawaii 2015, amended section 269-92, Hawaii Revised Statutes, to establish a one hundred per cent renewable portfolio standard by December 31, 2045, with the intent to transition the State away from imported fuels and toward renewable local resources that provide a secure source of affordable energy. Since that time, the need to reduce carbon emissions globally to avoid the worst impacts of climate change has become increasingly urgent. In addition, studies indicate that accelerating the adoption of renewable energy will cost less than the course laid out by the current renewable portfolio standard interim benchmarks. Speeding up the deployment of renewable energy will also create thousands of jobs and will position Hawaii at the forefront of energy innovation and investment.

Currently, the calculation of the renewable portfolio standard, based on the definition of renewable portfolio standard enacted in 2001 and amended in 2006, is the percentage of electrical energy sales that is represented by renewable electrical energy. The legislature finds that the calculation of the renewable portfolio standard based on electrical energy sales (renewable electrical energy sales divided by total electrical sales), rather than on electrical energy generation (renewable electrical energy generation divided by total electrical energy generation), overestimates the amount of renewable energy serving Hawaii's electric utility customers. There are two fundamental issues that lead to the current discrepancy:

(1) The current renewable portfolio standard calculation inflates the reported percentage of renewable energy by excluding customer-sited, grid-connected energy generation in the denominator, which becomes material with higher levels of customer-sited, grid-connected renewable energy generation and higher renewable portfolio standard percentages; and

(2) The current electrical energy sales number does not include energy losses that occur between the points of electrical energy generation and the customer meter, where sales are measured.

Failure to address these issues creates an incorrect measure of the State's progress toward its statutory goal of one hundred per cent renewable energy.

Furthermore, the legislature finds that Hawaii's energy sector is undergoing a transition to renewable energy that is strengthening the State's economy, helping to preserve the environment, and increasing the State's security. To complete this transition successfully, it is also important that all relevant entities are aligned. The legislature is concerned that requiring electric utilities but not gas utilities to increase their reliance on renewable energy creates an unfair playing field that may unintentionally harm consumers by promoting suboptimal long-lived investments in fossil fuels through gas-fired distributed electrical generation. These effects may also have short-term and long-term impacts on the viability of the State's electric and gas utilities.

The legislature finds that the simplest, fairest, and most effective solution to this concern is to implement renewable portfolio standard targets for gas utilities that are similar to those established for electric utilities.

The purpose of this Act is to:

(1) Require the public utilities commission to study the feasibility of implementing renewable portfolio standards to encourage the use of renewable energy by gas utility companies; and

(2) Amend the renewable portfolio standard interim goals for 2030 and 2040 to accelerate the adoption of renewable energy.

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

"§269- Renewable gas portfolio standards study. The public utilities commission shall:

(1) By December 31, 2021, develop and implement a utility ratemaking structure, which may include performance-based ratemaking, to provide incentives that encourage Hawaii's gas utility companies to use cost-effective renewable energy resources found in Hawaii to meet the renewable portfolio standard of reaching one hundred per cent by 2045, while allowing for deviation from the standards in the event that the standards cannot be met in a cost-effective manner or as a result of events or circumstances beyond the control of a gas utility company that could not have been reasonably anticipated or ameliorated;

(2) Gather, review, and analyze empirical data to:

(A) Determine the extent to which any proposed utility ratemaking structure would impact gas utility companies' profit margins; and

(B) Ensure that the gas utility companies' opportunity to earn a fair rate of return is not diminished;

(3) Use funds from the public utilities special fund to contract with the Hawaii natural energy institute of the University of Hawaii to conduct independent studies to be reviewed by a panel of experts from entities such as the United States Department of Energy, National Renewable Energy Laboratory, Electric Power Research Institute, Hawaii gas utility companies, environmental groups, and other similar institutions with the required expertise. These studies shall include findings and recommendations regarding:

(A) The capability of Hawaii's gas utility companies to achieve renewable portfolio standards in a cost-effective manner and shall assess factors such as:

(i) The impact on consumer rates;

(ii) Utility system reliability and stability;

(iii) Costs and availability of appropriate renewable energy resources and technologies, including the impact of renewable portfolio standards, if any, on the energy prices offered by renewable energy developers;

(iv) Permitting approvals;

(v) Effects on the economy;

(vi) Balance of trade, culture, community, environment, land, and water;

(vii) Climate change policies;

(viii) Demographics;

(ix) Cost of fossil fuel volatility; and

(x) Other factors deemed appropriate by the commission;

(B) Projected renewable portfolio standards to be set five and ten years beyond the then current standards;

(C) The technical feasibility of establishing renewable portfolio standards for gas utility companies in Hawaii, including:

(i) Identifying renewable alternatives, such as the procurement and importation of biogas; and

(ii) Recommendations for interim renewable targets before one hundred per cent renewable gas is achieved by December 31, 2045;

(D) Unregulated gas sales and what requirements are needed for the transition of gas that is unregulated to a renewable energy source; and

(E) If a renewable gas portfolio standard is established, the equity issues between renewable gas projects and if all the projects shall have access to the same incentives, such as tax credits;

(4) Evaluate the renewable portfolio standards every five years, beginning in 2022, and may revise the standards based on the best information available at the time to determine if the standards remain effective and achievable; and

(5) Report its findings and revisions to the renewable portfolio standards, based on its own studies and other information, to the legislature no later than twenty days before the convening of the regular session of 2021, and every five years thereafter."

SECTION 3. Section 269-92, Hawaii Revised Statutes, is amended to read as follows:

"§269-92 Renewable portfolio standards. (a) Each electric utility company that sells electricity for consumption in the State shall establish a renewable portfolio standard of:

(1) Ten per cent of its net electricity sales by December 31, 2010;

(2) Fifteen per cent of its net electricity sales by December 31, 2015;

(3) Thirty per cent of its net electricity sales by December 31, 2020;

(4) [~~Forty~~] Sixty-five per cent [~~of its net electricity sales~~] by December 31, 2030;

(5) [~~Seventy~~] Eighty-five per cent [~~of its net electricity sales~~] by December 31, 2040; and

(6) One hundred per cent [~~of its net electricity sales~~] by December 31, 2045.

(b) All electric grid-connected energy systems shall be one hundred per cent renewable energy systems by December 31, 2045; provided that generation that is used exclusively for emergency service in the event that the normal supply from the Hawaii electric system fails shall be excluded from the calculation as set forth in the definition of renewable portfolio standard in section 269-91.

[~~(b)~~] (c) The public utilities commission may establish standards for each electric utility company that prescribe [~~what~~] the portion of the renewable portfolio standards that shall be met by specific types of renewable energy resources; provided that:

(1) Prior to January 1, 2015, at least fifty per cent of the renewable portfolio standards shall be met by electrical energy generated using renewable energy as the source, and after December 31, 2014, the entire renewable portfolio standard shall be met by electrical generation from renewable energy sources;

(2) Beginning January 1, 2015, electrical energy savings shall not count toward renewable energy portfolio standards;

(3) Where electrical energy is generated or displaced by a combination of renewable and nonrenewable means, the proportion attributable to the renewable means shall be credited as renewable energy; and

(4) Where fossil and renewable fuels are co-fired in the same generating unit, the unit shall be considered to generate renewable electrical energy (electricity) in direct proportion to the percentage of the total heat input value represented by the heat input value of the renewable fuels.

[~~(c)~~] (d) If the public utilities commission determines that an electric utility company failed to meet the renewable portfolio standard, after a hearing in accordance with chapter 91, the utility shall be subject to penalties to be established by the public utilities commission; provided that if the commission determines that the electric utility company is unable to meet the renewable portfolio standards [~~due to~~] because of reasons beyond the reasonable control of an electric utility, as set forth in subsection (d), the commission, in its discretion, may waive in whole or in part any otherwise applicable penalties.

[~~(d)~~] (e) Events or circumstances that are [~~outside of~~] beyond an electric utility company's reasonable control may include, to the extent the event or circumstance could not be reasonably foreseen and ameliorated:

(1) Weather-related damage;

(2) Natural disasters;

(3) Mechanical or resource failure;

(4) Failure of renewable electrical energy producers to meet contractual obligations to the electric utility company;

(5) Labor strikes or lockouts;

(6) Actions of governmental authorities that adversely affect the generation, transmission, or distribution of renewable electrical energy under contract to an electric utility company;

(7) Inability to acquire sufficient renewable electrical energy due to lapsing of tax credits related to renewable energy development;

(8) Inability to obtain permits or land use approvals for renewable electrical energy projects;

(9) Inability to acquire sufficient cost-effective renewable electrical energy;

(10) Inability to acquire sufficient renewable electrical energy to meet the renewable portfolio standard goals beyond 2030 in a manner that is beneficial to Hawaii's economy in relation to comparable fossil fuel resources;

(11) Substantial limitations, restrictions, or prohibitions on utility renewable electrical energy projects; and

(12) Other events and circumstances of a similar nature[.] that could not be reasonably foreseen and ameliorated."

SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2019-2020 and the same sum or so much thereof as may be necessary for fiscal year 2020-2021 for the public utilities commission to carry out the renewable gas portfolio standards study as required by section 269- , Hawaii Revised Statutes; provided that the public utilities commission may contract with another institution to carry out the requirements set forth in section 269- , Hawaii Revised Statutes.

The sums appropriated shall be expended by the public utilities commission for the purposes of this Act.

SECTION 5. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2100.

HOUSE OF REPRESENTATIVES	H.B. NO.	550
THIRTIETH LEGISLATURE, 2019		H.D. 1
STATE OF HAWAII