SB839 SD2

SECTION 1. The legislature finds that accelerating the development of renewable energy to reduce greenhouse gases is a high priority. The legislature has enacted numerous Acts to achieve this objective, including:

(1) Act 97, Session Laws of Hawaii 2015, which established a renewable energy portfolio standards' target of one hundred per cent renewable electric energy by December 31, 2045;

(2) Act 15, Session Laws of Hawaii 2018, which established a statewide zero emissions clean economy target to sequester throughout the State more atmospheric carbon and greenhouse gases than emitted, as quickly as practicable but no later than 2045; and

(3) Act 238, Session Laws of Hawaii 2022, which established a statewide target that includes a greenhouse gas emissions limit of at least fifty per cent below 2005 greenhouse gas emission levels no later than 2030.

The legislature further finds that the timely completion of grid-connected renewable energy projects is also a high priority as it will help the State achieve the targets and limits established through prior legislation. On November 13, 2020, the public utilities commission issued a letter to the parties in docket numbers 2015-0389 (Community Based Renewable Energy), 2017-0352 (Hawaiian Electric Renewable Requests for Proposals), and 2018-0165 (Integrated Grid Planning), stating that it "is markedly concerned that Hawaiian Electric [Company]'s interconnection processes and policies are increasing development costs and extending renewable project timelines".

On December 23, 2020, under docket number 2018-0088 (Performance-Based Regulation), the public utilities commission issued order number 37507, indicating, in part, that it was concerned about interconnection delays and will implement a performance incentive mechanism to encourage Hawaiian Electric Company to accelerate the interconnection process. Order number 37507 also stated that "the scheduled retirement of the AES Power Plant in 2022, as well as [Hawaiian Electric Company, Inc.; Hawaii Electric Light Company, Inc.; and Maui Electric Company, Limited's] proposal to delay interconnecting several renewable energy and storage projects recently approved by the commission, underscores the need for expeditiously securing alternative sources of grid services to ensure that system needs are met".

The legislature notes that during phase 1 and phase 2 of the electric utility's procurement under docket no. 2017-0352, projects have been delayed or terminated, due in part to costs and delays of interconnection. On February 11, 2021, the public utilities commission opened docket number 2021-0024 to review Hawaiian Electric Company's interconnection process and transition plans for retirement of fossil fuel plants.

In 2022, the public utilities commission testified that it had set up a tracker accounts to quantify and monitor the cost of project delays. As of the monthly update submitted by the Hawaiian Electric Company on January 21, 2022, the tracked cost totaled over $10,000,000 across several projects. The public utilities commission also testified that it issued a request for information to solicit input from qualified entities to serve under contract as a Hawaii electric reliability administrator. On September 9, 2022, instead of procuring a Hawaii electric reliability administrator, the public utilities commission awarded a procurement contract that hired an independent engineer to assist the commission in overseeing the technical aspects of the upcoming phase 3 procurement processes, reviewing interconnection requirements that had already been established by the Hawaiian Electric Company and associated costs, resolving technical disputes related to interconnection of resources, assisting in the implementation of interconnection-related performance incentive mechanisms, and serving a general advisory role to the commission on issues related to Hawaiian Electric Company's interconnection process. These duties only cover a subset of the duties of a Hawaii electric reliability administrator, pursuant to part IX of chapter 269, Hawaii Revised Statutes, and therefore will not result in commission-established reliability standards for interconnection and the grid, an interconnection dispute resolution process, nor long-term grid planning for the State.

In the latter half of 2022, the public utilities commission approved Hawaiian Electric Company's recommendation to complete the interconnection requirements study and total estimated interconnection cost for each phase 3 procurement project selected prior to the signing and filing of the power purchase agreement with the public utilities commission for approval.

However, phase 3 procurement projects are required to assume interconnection costs prior to the completion of the interconnection requirements study and total estimated interconnection cost. If these costs are higher than what the project assumed before or after bid submission to the public utilities commission, the project is not allowed to adjust its bid price to reflect the higher-than-anticipated cost. Moreover, under the commission-approved model power purchase agreement, Hawaiian Electric Company, which performs the interconnection construction, is further permitted to increase the project's interconnection costs. Thus, the revised process approved by the public utilities commission does not result in meaningful reform to the interconnection issues impacting timely and cost-effective renewable energy development, which affects the ratepayer.

Also in the latter half of 2022, Hawaiian Electric Company issued four separate requests to Hawaii island customers to limit their use of electricity to prevent the possibility of rolling blackouts due to factors including the unexpected loss of several large generators, lower wind resources, and lower-than-expected geothermal output. This further substantiates the urgency to create and implement reliability standards through a Hawaii electric reliability administrator.

The legislature also finds that the State does not regulate interconnection costs, which results in the ratepayer bearing the full financial burden of both interconnection costs and utility network upgrades in the electricity rates. The Federal Energy Regulatory Commission, an independent federal agency that regulates the interstate transmission of natural gas, oil, and electricity and natural gas and hydropower projects, has developed a simple test for distinguishing interconnection facilities from network upgrades. In its Order No. 2003, the Federal Energy Regulatory Commission stated that, "Interconnection Facilities are found between the Interconnection Customer's Generating Facility and the Transmission Provider's Transmission System [...]. Network Upgrades include only facilities at or beyond the point where the Interconnection Customer's Generating Facility interconnects to the Transmission Provider's Transmission System." This distinction clarifies and determines which party has ultimate cost responsibility. Order No. 2003 also generally found that "it is just and reasonable for the interconnection customer to pay for Interconnection Facilities but not for Network Upgrades."

Establishing grid reliability standards, regulating the timely and transparent interconnection of utility-scale renewable energy projects, and distinguishing the cost responsibilities between interconnection facilities and utility network upgrades will help to bring utility-scale renewable energy projects online sooner; decrease electricity rates for consumers; provide project developers with added certainty regarding project timelines and transparent costs; encourage lower bid prices; achieve the State's renewable portfolio standard goals; establish long-term institutional knowledge within the public utilities commission; reduce greenhouse gas emissions; and mitigate the effects of climate change.

Accordingly, the purpose of this Act is to:

(1) Establish the Hawaii electricity reliability surcharge special fund and subaccount;

(2) Require the public utilities commission to establish reliability standards and interconnection requirements for all electric utilities and all users, owners, or operators of the Hawaii electric system and determine the responsible party to bear any costs associated with any reliability standards as interconnection requirements;

(3) Require the public utilities commission to:

(A) Distinguish between interconnection facilities and utility network upgrades;

(B) Ensure that the cost of interconnection facilities shall be the responsibility of the interconnection customer; and

(C) Ensure that the cost of utility network upgrades at and beyond the point of interconnection to the utility's transmission system shall be the sole responsibility of the utility transmission provider;

(4) Establish a timeline and requirements for interconnection procedures to be established by the public utilities commission for certain utility-scale renewable energy projects;

(5) Make the public utilities commission's contracting for the Hawaii electric reliability administrator mandatory rather than discretionary; provided that the Hawaii electricity reliability administrator surcharge has been established;

(6) Beginning January 1, 2024, require the Hawaii electricity reliability administrator surcharge to be imposed on the bills of customers of investor-owned electric utility companies to cover the complete cost of the Hawaii electricity reliability administrator and deposited into the Hawaii electricity reliability surcharge special fund; and

(7) Require the public utilities commission to submit an annual report and assessment of the Hawaii electric reliability administrator to the legislature.

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

"§269- Hawaii electricity reliability surcharge special fund; subaccount. (a) There is established a Hawaii electricity reliability surcharge special fund into which shall be deposited:

(1) The funds collected by the Hawaii electricity reliability administrator surcharge pursuant to section 269-149; and

(2) Appropriations made by the legislature for deposit into the fund.

(b) The moneys collected in the Hawaii electricity reliability surcharge special fund shall be expended by the public utilities commission for any and all expenses related to ensuring the reliable operation of the Hawaii electric system and overseeing grid access on the Hawaii electric system.

(c) There is established the Hawaii electricity reliability surcharge special fund subaccount into which shall deposited surcharge transfers from investor-owned electric utility companies. Subject to approval by the public utilities commission, the Hawaii electricity reliability administrator may draw on the subaccount pursuant to section 269-149."

SECTION 3. Section 269-142, Hawaii Revised Statutes, is amended to read as follows:

"[[]§269-142[]] Reliability standards; interconnection requirements; adoption and development; force and effect. (a) The commission [~~may~~] shall adopt, by rule or order, reliability standards and interconnection requirements. Reliability standards and interconnection requirements adopted by the commission shall apply to any electric utility and any user, owner, or operator of the Hawaii electric system. The commission shall not contract for the performance of the functions under this subsection to any other entity as provided under section 269-147.

(b) The commission [~~may~~] shall develop reliability standards and interconnection requirements as it determines necessary or upon recommendation from any entity, including an entity contracted by the commission to serve as the Hawaii electricity reliability administrator provided for under this part, for the continuing reliable design and operation of the Hawaii electric system. The commission shall determine the responsible party to bear any costs associated with any reliability standards or interconnection requirements. Any reliability standard or interconnection requirement developed by the commission shall be adopted by the commission in accordance with subsection (a) in order to be effective. The commission shall not contract for the performance of the functions under this subsection to any other entity as provided under section 269-147.

(1) Distinguish between interconnection facilities and utility network upgrades;

(2) Ensure that the cost of interconnection facilities shall be the responsibility of the interconnection customer; and

(3) Ensure that the cost of utility network upgrades at and beyond the point of interconnection to the utility's transmission system shall be the sole responsibility of the utility transmission provider.

[~~(c)~~] (d) The commission shall have jurisdiction over matters concerning interconnection requirements and interconnections located in the State between electric utilities, any user, owner, or operator of the Hawaii electric system, or any other person, business, or entity connecting to the Hawaii electric system or otherwise applying to connect generation or equipment providing ancillary services to, or operate generation and equipment providing ancillary services in parallel with the Hawaii electric system under processes established in accordance with section 269-145. Nothing in this subsection is intended to give the commission general supervision authority over any user, owner, or operator of the Hawaii electric system or any other person, business, or entity that is not a public utility as defined in section 269-1.

(e) For purposes of this section:

"Generating facility" means the specific device for which the interconnection customer has requested interconnection.

"Interconnection customer" means the owner of the generating facility that is interconnecting at the utility point of interconnection at the transmission provider's transmission system.

"Interconnection facilities" means facilities that are found between the interconnection customer's generating facility and the utility transmission provider's transmission system.

"Transmission provider" means the entity or entities with which the generating facility is interconnecting.

"Utility network upgrades" means facilities at or beyond the point where the interconnection customer's generating facility interconnects to the utility transmission provider's transmission system."

SECTION 4. Section 269-145, Hawaii Revised Statutes, is amended to read as follows:

"[[]§269-145[]] Grid access; procedures for interconnection; dispute resolution. (a) Each user, owner, or operator of the Hawaii electric system, or any other person, business, or entity seeking to make an interconnection on the Hawaii electric system shall do so in accordance with procedures to be established by the commission by rule or order.

(b) The commission shall establish interconnection procedures as follows:

(1) The commission shall include in any interconnection procedures established pursuant to this section requirements that the electric public utility:

(A) Complete the interconnection design;

(B) Reach agreement with the renewable energy project developer;

(D) Meet the requirements under subparagraphs (A) through (C) as soon as practicable;

(E) Meet timelines and deadlines as determined by the commission; and

(F) Submit interim reports to the commission on the status of the electric public utility's efforts to comply with the requirements of this subsection ninety days and one hundred eighty days after the renewable energy project power purchase agreement is filed with the commission for review and approval;

(2) If the electric public utility is unable to comply with the requirements of this subsection, the electric public utility shall report, in writing, the reasons for noncompliance to the commission within ten calendar days after the failure to meet timelines and deadlines established by the commission;

(3) If the electric public utility fails to meet the requirements established by the commission pursuant to this subsection, the electric public utility shall forfeit and return all moneys or other financial incentives that the electric public utility has received as part of any performance incentive mechanism program or similar incentive-based award recognized by the commission in connection with the renewable energy project; and

(4) The commission shall submit a report to the governor and legislature regarding any failure to meet the timing under this subsection by any electric public utility within thirty days of the commission receiving notice of this failure;

provided that this subsection shall only apply to utility-scale renewable energy projects that are five megawatts in total output capacity or larger, and to any community-based renewable energy projects that the commission has determined to be responsible for interconnection costs.

[~~(b)~~] (c) The commission shall have the authority to make final determinations regarding any dispute between any user, owner, or operator of the Hawaii electric system, or any other person, business, or entity connecting to the Hawaii electric system, concerning either an existing interconnection on the Hawaii electric system or an interconnection to the Hawaii electric system created under the processes established by the commission under this section."

SECTION 5. Section 269-146, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The commission may require, by rule or order, that [~~all~~] any utilities, persons, businesses, or entities connecting to the Hawaii electric system, or any other user, owner, or operator of any electric element that is a part of an interconnection on the Hawaii electric system [~~shall~~] pay a surcharge that shall be collected by Hawaii's electric utilities. The commission shall not contract or otherwise delegate the ability to create the Hawaii electricity reliability surcharge under this section to any other entity. This surcharge amount shall be known as the Hawaii electricity reliability surcharge."

SECTION 6. Section 269-147, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The commission [~~may~~] shall contract for the performance of its functions under this part with a person, business, or organization, except for a public utility as defined under this chapter, that will serve as the Hawaii electricity reliability administrator provided for under this part; provided that the Hawaii electricity reliability administrator surcharge has been established pursuant to section 269-146; provided further that the commission shall not contract for the performance of its functions under sections 269-142(a) and (b) and 269-146."

SECTION 7. Section 269-149, Hawaii Revised Statutes, is amended to read as follows:

"[[]§269-149[]] Funding; reporting. (a) The Hawaii electricity reliability administrator shall use funds collected through the Hawaii electricity reliability surcharge provided for under section 269-146 to carry out its operations, including administrative, technological, or other related requirements for effectively ensuring the reliability of the Hawaii electric system. Beginning January 1, 2024, a Hawaii electricity reliability administrator surcharge shall be imposed on the bills of customers of investor-owned electric utility companies to cover the complete cost of the Hawaii electricity reliability administrator and deposited according to section 269- .

(b) The Hawaii electricity reliability administrator shall report to the commission each year on the date of agreement under section 269-147 following the original contracting between the Hawaii electricity reliability administrator and the commission on the status of its operations, financial position, and a projected operational budget for the fiscal year following the date of the report.

(c) The Hawaii electricity reliability administrator shall be subject to regulation by the commission under any provision applicable to a public utility in sections 269-7, 269-8, 269‑8.2, 269-8.5, 269-9, 269-10, 269-13, 269-15, 269-19.5, and 269-28. Notwithstanding any other provision of law to the contrary, the Hawaii electricity reliability administrator shall not be an electric public utility or an electric public utility affiliate.

(d) Within thirty days of receipt of the Hawaii electric reliability administrator's report submitted to the commission pursuant to this section, the commission shall submit to the legislature the report and the commission's assessment of the status and progress of the Hawaii electric reliability administrator in achieving and accomplishing the objectives of this part."

SECTION 8. 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 2023-2024 to be deposited into the Hawaii electricity reliability surcharge special fund.

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

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	839
THIRTY-SECOND LEGISLATURE, 2023		S.D. 2
STATE OF HAWAII