Report Title:

Electric Utility Charges and Discounts; Distributed Energy Resources

Description:

Requires the public utilities commission to consider a number of specific issues in proceedings before the commission related to standby charges or customer retention discounts related to distributed energy resources (DER) in an effort achieve the appropriate balance between encouraging DER and the need for equitable rates under a variety of arrangements between DER owners and electric utilities.(HB2660 HD1)

 

 

HOUSE OF REPRESENTATIVES

H.B. NO.

2660

TWENTY-FIRST LEGISLATURE, 2002

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO ELECTRIC UTILITIES.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that increased use of customer self-generation and distributed energy resources (DERs) can provide electricity with greater reliability, lower cost, and greater energy efficiency than utility generation. DER systems can use renewable energy providing economic, environmental, and fuel diversity benefits that would contribute to further development of indigenous renewable energy. Many DER systems offer the advantages of new, highly advanced technologies and some will use hydrogen fuels that could be produced in Hawaii in the near future. These advantages will also help reduce Hawaii’s dependence on imported oil, which is subject to sudden and sharp price spikes that threaten Hawaii’s economic stability.

Operated in coordination with Hawaii's electric utilities, DERs could serve a peak shaving function and back up intermittent renewables and reduce costly reserve capacity requirements. DERs can also enhance Hawaii's energy system security in the face of natural disasters or other emergencies.

The legislature further finds that DERs offer important benefits to Hawaii's people, energy, and economic security, as well as an opportunity for economic development and diversity by becoming a leader in DER systems.

The legislature further finds certain electric utility pricing practices and agreements discourage the use of customer self-generation and DER systems and, thus, jeopardize Hawaii’s ability to reap these benefits. There is no reason to require customers to pay for charges that are not incurred, just as there is no reason to excuse customers from paying for charges incurred on their behalf. In addition, a customer retention discount offered by an electric utility should benefit the other customers on the utility system and not just serve to preserve the utility's market.

The purpose of this Act is to create a more equitable regulatory environment by requiring the Public Utilities Commission to consider a number of specific issues in proceedings before the Commission related to standby charges or customer retention discounts related to DER. It is the intention of the legislature that the Commission achieves the appropriate balance between the legislature's desire to encourage DER and the need for equitable rates under a variety of arrangements between DER owners and electric utilities. The policies will apply to any fossil-fueled onsite generation facility requiring some level of standby service, whether for supplemental, backup, or maintenance purposes. Such facilities include self-generation and cogeneration. Renewable energy systems or net-metered systems shall not be subject to standby charges or customer retention discounts.

SECTION 2. (a) Notwithstanding chapter 269, Hawaii Revised Statutes, or any authorization by the public utilities commission to any public utility to the contrary, the public utilities commission shall consider a number of specific issues in proceedings before the Commission related to standby charges or customer retention discounts related to DER.

(b) For purposes of this section:

"Cogeneration" is the generation of electricity or shaft power by an energy conversion system and the concurrent use of waste thermal energy from the conversion system as an auxiliary energy source. Also known as combined heat and power, or CHP. Cogeneration units are generally much more energy efficient than the utility electric system.

"Customer retention discount" means an offer by a utility to prevent a major commercial or industrial customer from installing on-site generation that would reduce electric load on the company system by offering a discount to the customer if the customer does not install on-site generation. The "customer retention discount" is intended to preserve market share and retain customer revenues that contribute to the fixed costs of the utility.

"Customer self-generation" means the production of electricity and, in many cases, useful thermal energy (heat or stream) used for industrial, commercial, heating, or cooling purposes by a metered customer of an electric utility who owns and operates the facility that is:

(1) Located on the customer's premises;

(2) Operated in parallel with the utility's transmission and distribution facilities;

(3) In conformity with the utility's interconnecting requirements; and

(4) Intended primarily to offset part or all of the customer's owner electricity requirements.

"Distributed energy resources" means modular electric generation or storage located near the point of use. Distributed energy resources include biomass-based generators, combustion turbines, concentrating solar power and photovoltaic systems, fuel cells, wind turbines, microturbines, engines/generator sets, and storage and control technologies. Distributed energy resources can either be grid connected or operated independently of the grid. In contrast to large, central-station power plants, distributed energy resources systems typically range from less than a kilowatt to tens of megawatts in size. Distributed energy resources can be utility-owned or customer-owned.

"Diversity level" means the probability of multiple distributed generation units being out of service simultaneously. Diversity reduces transmission and distribution infrastructure requirements.

"Incumbent utility company" includes every person who may own, control, operate, or manage as owner, lessee, trustee, receiver, or otherwise, whether under a franchise, charter, license, articles of association, or otherwise, any plant or equipment, or any part thereof, directly or indirectly for public use, for the production, transmission, delivery, or furnishing of electricity; provided that the term shall not include any person who:

(1) Controls, operates, or manages plants or facilities for the production, transmission, or furnishing of power primarily or entirely from non-fossil fuel sources; and

(2) Provides, sells, or transmits all of that power, except such power as is used in its own internal operations, directly to a public utility for transmission to the public.

"Net-metered" means measuring the difference between the electricity supplied through the electric grid and the electricity generated by an eligible customer-generator and fed back to the electric grid over a specified period of time. The customer is charged for the amount of electricity received from the grid minus the amount the customer supplied to the grid. If more electricity was supplied to the grid than received by the customer, the utility does not pay the difference.

"Physical assurance" means the application of devices and equipment that interrupt a distributed generation customer’s normal load when distributed generation does not operate. If a customer is willing to provide physical assurance, the utility will not install facilities to serve the load ordinarily served by the onsite generator so costs associated with serving that customer will either be very limited or nonexistent.

"Renewable energy" means electrical energy produced by wind, solar energy, hydropower, landfill gas, waste to energy, geothermal resources, ocean thermal energy conversion, wave energy, biomass including municipal solid waste, biofuels or fuels derived entirely from organic sources, hydrogen fuels, or fuel cells where the fuel is derived entirely from renewable sources. "Renewable energy" also means electrical energy savings brought about by the use of solar water heating.

"Standby charge" means any charge by the incumbent utility company for services to a customer who obtains electric power from sources other than the incumbent utility company, including standby services that back up the customer's non-utility source of energy during those periods when that source is not available to provide electric energy for the customer's electric load.

"Standby services" means services that back up the customer's non-utility source of energy during those periods when that source is not available to provide electric energy for the customer's electric load. There are three general types of standby service: supplemental, backup, and maintenance.

(1) "Supplemental service" means power supplied by the utility to a customer whose onsite source of generation does not regularly supply all the power necessary at their premises. The utility must plan to serve supplemental power loads.

(2) "Backup service" means service supplied by the utility supplied by the utility in lieu of generation normally provided by the customer’s onsite generation facilities during periods of unscheduled outages. Backup service is available instantaneously and effectively requires the utility to plan to serve the diversified load of backup standby customers at all times.

(3) "Maintenance service" means service scheduled by the customer with the utility to replace onsite generation when the customer’s generating facilities are scheduled to be out of service. Maintenance service is scheduled with the utility at times of low load and thus does not require the utility to build or reserve capacity to serve it.

"System diversity" means the total amount of load placed on the system by a combination of users. Diversity and reliability levels represent a statistical assumption that a certain percentage of standby load will be utilizing transmission and distribution service at a particular time. Diversity should be taken into account when establishing standby rates at transmission and distribution voltages.

SECTION 3. (a) The public utilities commission shall, when considering standby charges, consider ratemaking design and ratemaking policies that:

(1) Provide for fair cost allocation among customers,

(2 Allow the utility adequate cost recovery while minimizing costs to customers,

(3) Facilitate customer-side distributed generation deployment, and

(4) Send proper price signals to prospective purchasers of distributed generation.

(b) The commission, in its consideration of standby charges, shall consider the following elements to ensure that the provisions of subsection 3(a) are met:

(1) Ensure that standby charges are cost-based,

(2) Provide for equitable treatment of cost recovery for distribution service where customers provide for physical assurance;

(3) Consider equitable treatment of different levels of service such as supplemental power, backup service, and maintenance service;

(4) Supplemental power should continue to be priced according to the customer's otherwise applicable tariff;

(5) Reflect reduced costs for providing services such as backup and maintenance service for customer installed distributed energy resources compared to supplemental service;

(6) Recognize cost differences between supplemental power and backup power needs by considering the value of diversity in standby reservation charges, since diversity reduces transmission and distribution infrastructure requirements;

(7) Backup service should be allocated a greater share of costs than maintenance service because it is an on-demand service and has distribution infrastructure requirements associated with it;

(8) Recovery of public purpose costs from standby customers through a cost per kilowatt usage charge;

(9) Charges based on embedded, not incremental, costs of service, consistent with the manner in which rates are calculated for other distribution services;

(10) Factor benefits when distributed energy resources reduce peak electricity demand when the costs of the utility delivering power are at their highest;

(11) Distributed energy resources utilizing renewable energy resources shall not be subject to standby charges or customer recognition rates in consideration of the economic, environmental and fuel diversity benefits of renewables; and

(12) Whether or not customer retention discounts have been utilized to discourage customers from installing distributed energy resources and how this practice is consistent with the provisions of subsection 3(a).

(c) If the commission does not consider any or all of the requirements of subsection 3(b), it shall provide a report to the legislature explaining its actions and demonstrating how its decision is in the public interest. The commission shall provide this report no later than ___ days following any decision and order issued.

SECTION 4. This Act shall take effect upon its approval.