Report Title:

Energy Conservation Initiatives.

Description:

Provides for solar general obligation bonds to finance solar facilities and equipment for state facilities; geothermal royalties for hydrogen research and development; statewide energy audit; and two-year extension of the energy conservation tax credit.

HOUSE OF REPRESENTATIVES

H.B. NO.

288

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to energy conservation initiatives.

 

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

PART I

SECTION 1. Hawaii is over ninety per cent dependent on imported oil, is physically isolated from outside sources of energy, and is vulnerable to economic disruptions in the world oil market. With existing technology, Hawaii can convert its solar and wind resources into a usable source of thermal or mechanical energy, electricity, and fuel. Geothermal energy is a proven source of electricity generation. Wave energy, ocean thermal conversion, and hydrogen fuel are other renewable energy sources available to Hawaii. The legislature finds that the paradoxical situation of being generously blessed with renewable energy and at the same time being critically dependent on imported fossil fuel can no longer be tolerated.

The health, security, and welfare of the State is inextricably linked to a concerted and deliberate effort to increase use of the State's renewable energy resources and its efficiency and sustainability.

The legislature finds that there are numerous means to energy self-sufficiency. The state government, as one of the largest consumers of electricity, must lead by example. With research and development, hydrogen could competitively serve as an alternative source of energy for fueling vehicles and generating electricity. Hawaii's geothermal resources, a proven source of power and revenues, can support the development of hydrogen. The successful use of the State's renewable energy is dependent on a plan that addresses all the critical energy components of Hawaii, including the use of tax credits as an incentive for increasing the use of renewable energy.

The purpose of this Energy Conservation Initiatives Act is to:

(1) Authorize the issuance of $25,000,000 in general obligation bonds to finance the incorporation of solar energy facilities and equipment in state facilities to generate electricity;

(2) Allocate $250,000 per year of the State's portion of the geothermal royalties to the department of business, economic development, and tourism to fund hydrogen research and development as an alternative energy source;

(3) Appropriate $50,000 for a statewide energy audit; and

(4) Extend the energy conservation tax credit that expires on June 30, 2003, to June 30, 2005.

PART II

SECTION 2. The legislature finds that solar energy facilities and equipment can provide a viable means to produce safe energy resources for various state departments and agencies. Solar energy technology allows electricity to be generated at the source where it is consumed and consequently provides increased energy independence and diminishes the vulnerability of state facilities where it is installed from rolling blackouts, other failures of the electric grid, and the volatility of the energy market. Solar energy offers a clean, silent, and reliable source of energy and produces energy during peak demand.

The legislature further finds that for the fiscal year ending June 30, 2001, the state government used over six hundred sixty-eight million kilowatts of electricity at a cost of over $83,500,000. The potential savings to the State by installing solar energy technology in its facilities to generate electricity could pay for all or a substantial portion of the costs associated with issuing $25,000,000 in general obligation bonds for that purpose.

The legislature further finds that it is in the public interest to finance the incorporation of solar energy facilities and equipment into state facilities to generate electricity.

Accordingly, it is the purpose of this part to:

(1) Authorize the issuance and appropriation of $25,000,000 in general obligation bonds to finance the acquisition, construction, rehabilitation, installation, and improvement of solar energy facilities and equipment in state facilities for the generation of electricity;

(2) Provide that the State will identify, evaluate, and prioritize qualifying projects that should be improved with solar energy facilities and equipment; and

(3) Require the department of accounting and general services to conduct a comprehensive study on the practicality, economics, and other relevant aspects of state facilities generating their own electrical power.

SECTION 3. (a) The State shall finance the acquisition, construction, rehabilitation, installation, and improvement of solar energy facilities and equipment in state facilities for the generation of electricity as provided for in this part.

(b) The State shall identify, evaluate, and prioritize qualifying projects. Those projects with the highest benefit to cost ratios shall be given priority to finance the acquisition, construction, rehabilitation, installation, and improvement of solar energy facilities and equipment for the generation of electricity; subject to the consent of those state departments, agencies, or enterprises that own or control the facilities or lands on which the solar energy facilities and equipment are proposed to be sited.

(c) As used in this part:

"Solar energy facilities and equipment" means any new identifiable device, apparatus, system, or the like which makes use of solar energy to produce electricity.

SECTION 4. The department of accounting and general

services shall submit a comprehensive report to the legislature and the governor twenty days prior to the convening of the regular sessions of 2004 and 2005 regarding the acquisition, construction, rehabilitation, installation, and improvement of solar energy facilities and equipment in state facilities to generate electricity pursuant to this part, including:

(1) The annual and total cumulative cost to finance the acquisition, construction, rehabilitation, installation, and improvement of solar energy facilities and equipment in state facilities;

(2) An analysis of the cost to benefit ratio of state facilities generating their own electricity requirements by general obligation bond financing;

(3) The impact on the demand and supply of electricity generated by electric utilities;

(4) The decision-making criteria employed to determine whether to finance the acquisition, construction, rehabilitation, installation, and improvement of solar energy facilities and equipment for a particular state facility; and

(5) Recommended legislation to effectuate the purpose of this part.

SECTION 5. The director of finance is authorized to issue general obligation bonds in the sum of $25,000,000 or so much thereof as may be necessary and the same sum or so much thereof as may be necessary is appropriated for fiscal year 2003-2004 to finance the acquisition, construction, rehabilitation, installation, and improvement of solar energy facilities and equipment in state facilities for the generation of electricity.

SECTION 6. The appropriation made for the capital improvement project authorized by this part shall not lapse at the end of the fiscal year for which the appropriation is made; provided that all moneys from the appropriation unencumbered as of June 30, 2005, shall lapse as of that date.

SECTION 7. The sum appropriated shall be expended by the department of accounting and general services for the purposes of this part.

PART III

SECTION 8. Scientists have recognized hydrogen as a potential source of fuel for many years. Currently, hydrogen is used in industrial processes, rocket fuel, and spacecraft propulsion.

The legislature finds that Hawaii represents an excellent site to attract government and industry investment in hydrogen. With its high fuel costs and a wealth of renewable resources, Hawaii could attract advanced technology development companies for research, development, testing, and deployment. The University of Hawaii is recognized as a "center for excellence in hydrogen research" by the United States Department of Energy. These factors can lead to the development of a hydrogen-based economy where Hawaii produces more of its own environmentally clean fuels, thus reducing its dependence on fossil fuels, and resulting in job growth, reduced pollution, and a more robust state economy.

The legislature further finds that the use of geothermal royalties is a logical nexus for the promotion of hydrogen as an energy source and the State's efforts to increase and enhance hydrogen use in Hawaii. Accordingly, the purpose of this part is to provide a dedicated source of funding for hydrogen research and development by allocating $250,000 of all royalties received by the State from geothermal resources to the department of business, economic development, and tourism.

SECTION 9. Section 182-7, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) The payments to the State as fixed by the board shall be specified; provided that:

(1) In the case of bauxite, bauxitic clay, gibbsite, diaspore, boehmite, and all ores of aluminum, the amount of royalties for each long dry ton of ore as beneficiated shall not be less than twenty-five cents or the equivalent of the price of one pound of virgin pig aluminum, whichever is higher, nor shall it exceed the equivalent of the price of three pounds of virgin pig aluminum;

(2) The rate of royalty for ore processed into aluminous oxide in the State shall be set at eighty per cent of the rate of royalty for ore not processed to aluminous oxide in the State; and

(3) The royalty shall be fixed at a rate which will tend to encourage the establishment and continuation of the mining industry in the State.

The prices of virgin pig aluminum for the purpose of determining the royalties under this section shall be the basic price on the mainland United States market for virgin pig, not refined, f.o.b. factory. The royalties shall be in lieu of any severance or other similar tax on the extracting, producing, winning, beneficiating, handling, storing, treating, or transporting of the mineral or any product into which it may be processed in the State, and shall not be subject to reopening or renegotiating for and during the first twenty years of the lease term.

In the event the lessee desires to mine other minerals, the lessee, before mining the minerals, shall so notify the board in writing, and the board and the lessee shall negotiate and fix the royalties for the minerals.

Any other law to the contrary notwithstanding, thirty per cent of all royalties received by the State from geothermal resources shall be paid to the county in which mining operations covered under a state geothermal resource mining lease are situated.

Notwithstanding any other law to the contrary, $250,000 per year of the State's portion of the royalties from geothermal resources shall be allocated to the department of business, economic development, and tourism to fund hydrogen research and development as an alternative energy source."

PART IV

SECTION 10. The legislature finds that energy is a critical determining factor in providing for economic prosperity, environmental well-being, and the desired quality of life for Hawaii residents and businesses today and for the future. How energy is generated and distributed is changing, thus, placing Hawaii at a very critical juncture.

Dee Hock, the former chief executive officer of VISA International notes, "If one is to properly understand events and to influence the future, it is essential to master four ways of looking at things: as they were, as they are, as they might become, and as they ought to be."

Short-term thinking and the present statutory scheme to regulate the energy sector do not work. A thoughtful, macro approach must be applied to move Hawaii's energy sector from the industrial age to the information age. Clarifying and advancing ethical, scientific, political, and economic knowledge to form an intelligent foundation of common purpose must be articulated in policy and easily carried out in regulation and implementation.

Hawaii’s energy and transportation sectors are largely dependent on fossil fuels. This dependency makes Hawaii's economy vulnerable because of oil pricing volatility and supply interruptions that are not under Hawaii’s control. The State must develop a set of policies that puts its own energy future more directly under its own control and does not leave it subject to the degree it currently is--to the volatility of international energy markets. The use of fossil fuels raises concerns about pollution and issues of global climate change. And, concerns of energy security issues made more obvious by the events of September 11, 2001, must be addressed in the context of Hawaii's geographic isolation.

Currently, Hawaii's energy policy addresses these important concerns. However, Hawaii's existing regulatory structure, cost, and implementation methods place barriers to the effectuation of these policies. Therefore, the legislature reaffirms the State’s energy objectives of:

(1) Dependable, efficient, and economical statewide energy systems capable of supporting the needs of the people;

(2) Increased energy self-sufficiency where the ratio of indigenous to imported energy use is increased;

(3) Greater energy security in the face of threats to Hawaii’s energy supplies and systems; and

(4) Reduction, avoidance, or sequestration of greenhouse gas emissions from energy supply and use.

Two significant trends, decentralization and miniaturization, have already affected telecommunications and information technology. These trends now play an important role in changing the way electricity is generated and transmitted. Traditional large and centralized electrical generation plants that support economy of scale models are giving way to decentralized distributed power facilities that boost fuel efficiency, are environmentally clean and quiet, and are capable of providing premium power essential for promoting information technology. Further, the transmission and distribution grids no longer transmit power in one direction--from a centralized generating facility to the electricity consumer. Rather, distribution systems in particular now transmit power in multiple directions using concepts like net energy metering, which allows electricity customers to generate power and send any excess power back to the grid. Distributed power has the potential to create vast webs of energy suppliers and consumers.

Hawaii is ideally situated to take advantage of other technology advancements, such as hydrogen as an energy carrier and fuel cells, to maximize its renewable energy potential in the future and marry electrical distribution systems with the transportation sector. Such advancements move Hawaii a step closer to the vision of a hydrogen-based economy and its desired goals of energy self-sufficiency and energy security. However, this vision and these goals will be difficult to realize if regulatory barriers are not addressed in a timely manner.

In light of the availability of various generation and distribution energy systems, changing consumer preferences, environmental imperatives, technological advancements, and security issues arising from September 11th, the legislature finds that a comprehensive statewide review, examination, and analysis of Hawaii's existing energy situation, in particular Hawaii's electrical transmission and distribution system, in relation to the State's energy objectives is in the best interest of the State.

This audit must be comprehensive and objective. The National Conference of State Legislatures (NCSL), of which the State of Hawaii is a member, is a bipartisan organization that serves legislators and their staffs. Recognizing the need of legislatures in addressing policy and technical aspects surrounding electrical deregulation and utility restructuring among other energy issues, the NCSL established the Energy Project offering state legislatures assistance focused on this subject matter. The NCSL Energy Project has completed or is in the process of conducting energy audits for Montana and Rhode Island and would be available to conduct an audit for Hawaii at a reasonable cost and within the time period specified by this measure.

The purpose of this part is to require the auditor to contract with the NCSL to conduct a comprehensive statewide energy audit.

SECTION 11. Chapter 23, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§23- Statewide energy audit special fund. (a) There is created in the state treasury a special fund to be designated as the statewide energy audit special fund into which shall be deposited:

(1) Appropriations by the legislature; and

(2) Moneys transferred from the public utilities commission special fund.

(b) The proceeds in the fund shall be used to conduct a statewide energy audit."

SECTION 12. Chapter 103D, Hawaii Revised Statutes, to the contrary notwithstanding, the auditor shall contract with the NCSL to conduct a statewide energy audit consisting of a comprehensive statewide review, examination, and analysis of Hawaii's existing energy situation in relation to the State's energy objectives. The statewide energy audit shall:

(1) Evaluate the role, guiding principles, and policy framework of the public utilities commission in relation to:

(A) The State's energy objectives;

(B) Regulatory reform;

(C) Encouraging the development and integration of clean, efficient, reliable, and cost-effective energy technologies into the generation, transmission, and distribution system; and

(D) Developing a power system that integrates new technology in a cost-effective way, while taking environmental concerns into account;

(2) Evaluate the current regulatory system and monopolistic structure of the electric utilities in relation to:

(A) Promoting the State's energy objectives;

(B) The institution of innovations made possible by technological advancements such as small scale power generation;

(C) Implementing technologically advanced facilities in place of existing and aging facilities or constructing facilities using older traditional technology; and

(D) The effectiveness in Hawaii of the electric utility monopoly versus other market models. This examination shall consider the unique position of Hawaii as not interconnected with a larger power grid;

(3) Conduct a review of rate-of-return regulations and performance-based regulations in advancing the State's energy objectives;

(4) Evaluate means to integrate large-scale centralized power systems with small scale, distributed power systems in the context of the State's energy objectives;

(5) Consider the dilemma of cost-saving, on-site power generation by large power users and the resulting increase in cost to small businesses and residential ratepayers who remain on the grid;

(6) Challenge and question the basic assumptions underlying the State's energy objectives and policies for facility systems—energy in chapter 226, Hawaii Revised Statutes, and its application and implementation;

(7) Evaluate the role of the consumer advocate in relation to promoting the State's energy objectives;

(8) Review the functions, organizational structures, and staffing levels of all state and county agencies that directly and materially regulate energy;

(9) Examine federal funds received by the State and counties that directly and materially relate to the energy situation in Hawaii and determine methods to maximize the receipt of such federal funds;

(10) Establish methods for reporting and measuring compliance with the State's energy objectives and policies, or recommended energy objectives and policies; and

(11) Make recommendations, including:

(A) Any necessary policy changes to ensure the energy security of the State; and

(B) Proposed statutory or constitutional amendments that will ensure the energy security of the State.

For purposes of this part, "consultant" means the NCSL.

SECTION 13. All departments, agencies, and offices of the State and any private companies or agencies receiving state funds shall cooperate fully with and provide assistance to the consultant with respect to its statewide energy audit, and shall respond promptly to the consultant's request in conducting the statewide energy audit, including requests for records and other information in the course of the audit.

SECTION 14. The consultant shall:

(1) Report its progress on the statewide energy audit to the governor and the legislature no later than twenty days before the convening of the regular session of 2004; and

(2) Submit its final report of its findings and recommendations to the governor and the legislature no later than twenty days before the convening of the regular session of 2005.

SECTION 15. There is appropriated out of the public utilities commission special fund the sum of $50,000 or so much thereof as may be necessary for fiscal year 2003-2004 to be paid into the statewide energy audit special fund.

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

SECTION 16. There is appropriated out of the statewide energy audit special fund the sum of $50,000 or so much thereof as may be necessary for fiscal year 2003-2004 for a statewide energy audit to be conducted by the office of the auditor, in consultation with the NCSL.

The sum appropriated shall be expended by the auditor for the purposes of this part.

PART V

SECTION 17. Hawaii remains heavily dependent on petroleum fuel as its main source of energy. While oil accounts for forty per cent of the energy needs of the United States, it accounts for ninety per cent of Hawaii's energy needs.

As a result, the need to reduce our vulnerability to disruptions in oil supplies is an urgent one. One way to reduce this dependency on oil is by encouraging the use of indigenous resources as our sources of energy. The energy conservation income tax credit (tax credit), which has been in effect since 1977, is a proven strategy to meet this objective.

For example, according to papers on solar systems presented at the energy efficiency policy task force's energy symposium in November 2000, the tax credit contributes net economic and fiscal benefits and has been effective in stimulating investment in solar systems. Among other things, the papers found that:

(1) The tax credit serves as a market signal to consumers that stimulates investment in solar systems. Without the tax credit, it is estimated that the number of solar systems purchased would decrease by ninety per cent;

(2) With the tax credit, there is a positive fiscal impact to the State over the life of a purchased solar system at $1,842 per system. This is due to the energy savings from solar systems, the value of which is exogenous to Hawaii's economy;

(3) The tax credit employment impact over the life of a solar system is also positive; and

(4) If the tax credit is eliminated and the solar industry shrinks to ten per cent (close to three thousand systems are installed annually), the State will suffer a net fiscal loss of approximately $3,165 per solar system in the first year.

The purpose of this part is to extend the tax credit to July 1, 2005.

SECTION 18. Section 235-12, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) For taxable years beginning after December 31, 1989, each individual or corporate resident taxpayer who files an individual or corporate net income tax return for a taxable year, may claim a tax credit under this section against the Hawaii state individual or corporate net income tax. The tax credit may be claimed as follows:

(1) For wind energy systems that are installed and placed in service after December 31, 1989, but before July 1, [2003,] 2005, the credit shall be twenty per cent of the actual cost;

(2) For solar energy systems that are installed and placed in service after December 31, 1989, but before July 1, [2003,] 2005, on new and existing single family residential buildings, the credit shall be in an amount not to exceed thirty-five per cent or $1,750, per building unit, whichever is less, of the actual cost of the solar energy system;

(3) For solar energy systems that are installed and placed in service after December 31, 1989, but before July 1, [2003,] 2005, on new and existing multiunit buildings used primarily for residential purposes, the credit shall be in an amount not to exceed thirty-five per cent or $350 per building unit, whichever is less, of the actual cost of the solar energy system;

(4) For solar energy systems that are installed and placed in service after December 31, 1989, but before July 1, [2003,] 2005, in new and existing hotel, commercial, and industrial facilities, the credit shall be in an amount not to exceed thirty-five per cent of the actual cost of the solar energy system;

(5) For heat pumps that are installed and placed in service after December 31, 1989, but before July 1, [2003,] 2005, in new and existing single-family residential buildings, the credit shall be in an amount not to exceed twenty per cent or $400, per building unit, whichever is less, of the actual cost of the heat pump;

(6) For heat pumps that are installed and placed in service after December 31, 1989, but before July 1, [2003,] 2005, in new and existing multiunit buildings used primarily for residential purposes, the credit shall be in an amount not to exceed twenty per cent or $200 per building unit, whichever is less, of the actual cost of the heat pump; provided that a licensed professional engineer reviews the design of the system and provides a written opinion that the system, in accordance with recognized engineering practice, is designed to provide not less than ninety per cent of the daily annual average hot water needs of all of the occupants of the building;

(7) For heat pumps that are installed and placed in service after December 31, 1989, but before July 1, [2003,] 2005, in new and existing hotel, commercial, and industrial facilities, the credit shall be in an amount not to exceed twenty per cent of the actual cost of the heat pump; and

(8) For ice storage systems that are installed and placed in service after December 31, 1990, but before July 1, [2003,] 2005, the credit shall be in an amount not to exceed fifty per cent of the actual cost of the ice storage system.

The per unit of actual cost of a solar energy system or heat pump referred to in subsection (b)(3) and (6) shall be determined by multiplying the actual cost of the solar energy system or heat pump installed and placed in service in the multiunit building by a fraction, the numerator being the total square feet of that unit in the multiunit building, and the denominator being the total square feet of all the units in the multiunit building.

If federal energy tax credits similar to any of those provided in paragraphs (1) to (8) are established after June 30, 1998, but before July 1, [2003,] 2005, then the state tax credit provided in the respective paragraph or paragraphs shall be reduced by the amount of the applicable federal energy tax credit."

SECTION 19. The department of taxation shall submit a yearly report to the legislature no later than twenty days before the beginning of each regular session beginning with the 2004 session. The reports shall contain:

(1) The number of taxpayers that claimed the energy conservation income tax credit in the previous year;

(2) The number of tax credits each taxpayer claimed in the previous year;

(3) The cost to the state of these tax credits for the previous year; and

(4) The sum of each of these for all the years since the tax credit became available.

The report shall also include:

(1) An analysis of the economic impact of this tax credit on the state and the taxpayers that are eligible for the tax credit;

(2) A cost to benefit analysis of this tax credit; and

(3) Recommendations for amending the availability or caps on the tax credit if warranted.

The department of taxation shall work with the department of business, economic development, and tourism on this analysis.

PART VI

SECTION 20. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 21. This Act shall take effect on July 1, 2003;

provided that part V shall take effect on June 30, 2003.

INTRODUCED BY:

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