Report Title:

Energy Performance Contracts; Financing Options

Description:

Increases the allowable length of energy performance contracts from 15 years to 20 years; broadens the financing options & amends definitions; replaces shared savings plans with guaranteed savings plans; amends "renewable energy" definition; amends renewable portfolio standards to 10%, 20%, & 30% for 2010, 2015, & 2020, respectively; requires PUC to develop and implement a new renewable energy rate structure and report its impact. (SD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

2049

TWENTY-SECOND LEGISLATURE, 2004

H.D. 1

STATE OF HAWAII

S.D. 1


 

A BILL FOR AN ACT

 

relating to energy.

 

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

PART I

SECTION 1. Section 36-41, Hawaii Revised Statutes, is amended to read as follows:

"§36-41 Energy retrofit and performance contracting for public facilities. (a) All agencies shall evaluate and identify for implementation energy efficiency retrofitting through performance contracting. Agencies that perform energy efficiency retrofitting may continue to receive budget appropriations for energy expenditures at an amount that will not fall below the pre-retrofitting energy budget but will rise in proportion to any increase in the agency's overall budget for the duration of the performance contract or project payment term.

(b) Any agency may enter into a multi-year energy performance contract for the purpose of undertaking or implementing energy conservation or alternate energy measures in a facility or facilities. An energy performance contract may include but shall not be limited to financing options such as leasing, lease-purchase, financing agreements, third-party joint ventures, [shared-savings] guaranteed-savings plans, or energy service contracts, or any combination thereof; provided that in due course the agency may receive title to the energy system being financed. Except as otherwise provided by law, the agency that is responsible for a particular facility shall review and approve energy performance contract arrangements for the facility.

(c) Notwithstanding any law to the contrary relating to the award of public contracts, any agency desiring to enter into an energy performance contract shall do so in accordance with the following provisions:

(1) The agency shall issue a public request for proposals, advertised in the same manner as provided in chapter 103D, concerning the provision of energy efficiency services or the design, installation, operation, and maintenance of energy equipment or both. The request for proposals shall contain terms and conditions relating to submission of proposals, evaluation and selection of proposals, financial terms, legal responsibilities, and other matters as may be required by law and as the agency determines appropriate;

(2) Upon receiving responses to the request for proposals, the agency may select the most qualified proposal or proposals on the basis of the experience and qualifications of the proposers, the technical approach, the financial arrangements, the overall benefits to the agency, and other factors determined by the agency to be relevant and appropriate;

(3) The agency thereafter may negotiate and enter into an energy performance contract with the person or company whose proposal is selected as the most qualified based on the criteria established by the agency;

(4) The term of any energy performance contract entered into pursuant to this section shall not exceed [fifteen] twenty years;

(5) Any contract entered into shall contain the following annual allocation dependency clause:

"The continuation of this contract is contingent upon the appropriation of funds to fulfill the requirements of the contract by the applicable funding authority. If that authority fails to appropriate sufficient funds to provide for the continuation of the contract, the contract shall terminate on the last day of the fiscal year for which allocations were made";

(6) Any energy performance contract may provide that the agency ultimately shall receive title to the energy system being financed under the contract; [and]

(7) Any energy performance contract shall provide that total payments shall not exceed total savings[.]; and

(8) For any guaranteed-savings plan:

(A) The payment obligation for each year of the contract, including the year of installation, shall be guaranteed by the private sector person or company to be less than the annual energy cost savings attributable under the contract to the energy equipment and services. Such guarantee, at the option of the agency, shall be a bond or insurance policy, or some other guarantee determined sufficient by the agency to provide a level of assurance similar to the level provided by a bond or insurance policy; and

(B) In the event that the actual annual verified savings are less than the annual amount guaranteed by the energy service company, the energy service company, within thirty days of being invoiced, shall pay the agency, or cause the agency to be paid, the difference between the guaranteed amount and the actual verified amount.

[(d) Any agency may enter into an energy performance contract pursuant to this section for a period not to exceed fifteen years.]

(e) (d) For purposes of this section:

"Agency" means any executive department, independent commission, board, bureau, office, or other establishment of the State or any county government, the judiciary, the University of Hawaii, or any quasi-public institution that is supported in whole or in part by state or county funds.

"Energy performance contract" means an agreement for the provision of energy services and equipment, including but not limited to building or facility energy conservation enhancing retrofits, water saving technology retrofits, and alternate energy technologies, in which a private sector person or company agrees to finance, design, construct, install, maintain, operate, or manage energy systems or equipment to improve the energy efficiency of, or produce energy in connection with, a facility in exchange for a portion of the cost savings, lease payments, or specified revenues, and the level of payments is made contingent upon the verified energy savings, energy production, avoided maintenance, avoided energy equipment replacement, or any combination of the foregoing bases. Energy conservation retrofits also include energy saved off-site by water or other utility conservation enhancing retrofits.

"Facility" means a building or buildings or similar structure, including the site owned or leased by, or otherwise under the jurisdiction of, the agency.

"Financing agreement" shall have the same meaning as in section 37D-2.

["Shared-savings plan"] "Guaranteed-savings plan" means an agreement under which [the] a private sector person or company undertakes to design, install, operate, and maintain improvements to [the] an agency's facility or facilities and the agency agrees to pay a contractually specified amount of verified energy cost savings.

"Verified" means the technique used in the determination of baseline energy use, post-installation energy use, and energy and cost savings by the following measurement and verification techniques: engineering calculations, metering and monitoring, utility meter billing analysis, computer simulations, mathematical models, and agreed-upon stipulations by the customer and the energy service company."

PART II

SECTION 2. Section 269-91, Hawaii Revised Statutes, is amended by amending the definition of "renewable energy" to read as follows:

""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 derived [entirely] from renewable energy, or fuel cells where the fuel is derived [entirely] from renewable sources. Where biofuels, hydrogen, or fuel cell fuels are produced by a combination of renewable and nonrenewable means, the proportion attributable to the renewable means shall be credited as renewable energy. Where fossil and renewable fuels are co-fired in the same generating unit, the unit shall be considered to produce renewable electricity in direct proportion to the percentage of the total heat value represented by the heat value of the renewable fuels. "Renewable energy" also means electrical energy savings brought about by the use of solar [and heat pump] water heating[.], seawater air conditioning district cooling systems, and solar air conditioning."

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

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

(1) Seven per cent of its net electricity sales by December 31, 2003;

(2) Eight per cent of its net electricity sales by December 31, 2005; [and]

(3) [Nine] Ten per cent of its net electricity sales by December 31, 2010[.];

(4) Twenty per cent of its net electricity sales by December 31, 2015; and

(5) Thirty per cent of its net electricity sales by December 31, 2020."

SECTION 4. The public utilities commission shall:

(1) Develop and implement a utility rate structure, which may include but is not limited to performance-based ratemaking, by December 31, 2006, to provide the incentives to encourage Hawaii’s electric utilities to use renewable energy resources found in Hawaii to meet the renewable portfolio standards established in section 269-92, Hawaii Revised Statutes, while allowing deviation from the standard in the event of circumstances beyond the control of the utility which could not have been reasonably anticipated or ameliorated;

(2) Gather, review, and analyze empirical data to determine the extent to which this proposed utility rate structure would impact electric utility companies' profit margins and to ensure that these profit margins do not decrease for a period of five years following the implementation of this rate structure;

    1. Using funds from its special fund, contract with qualified technical experts to conduct independent studies to be reviewed by a panel of experts from among such entities as the U.S. Department of Energy, the National Renewable Energy Laboratory, the Electric Power Research Institute, the University of Hawaii Natural Energy Institute, or other similar institutions with the required expertise. These studies shall:

(A) Make findings and recommendations to the commission as to the capability of Hawaii’s electric utility companies to increase the percentage of renewable energy established by the standard in a cost-effective manner, or whether circumstances require that the standard be adjusted. Cost effectiveness and capability shall be assessed by factors such as the impact on consumer rates, utility system reliability and stability, costs and availability of appropriate renewable energy resources and technologies, and other such criteria deemed appropriate by the commission; and

(B) Make findings and recommendations to the commission for projected standards to be set five and ten years beyond the then current standard;

and

(4) Based on its own studies and those contracted under paragraph (3), the commission shall report its findings and recommendations, including, in particular, recommendations for new standards and goals, adjustments of percentages, and any proposed legislation, to the legislature no later than twenty days before the convening of the regular session of 2009, and every five years thereafter.

PART III

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

SECTION 6. This Act shall take effect on July 1, 2004.