Report Title:

Energy Conservation Initiatives.

Description:

Authorizes the issuance of $25,000,000 in general obligation bonds to finance the incorporation of renewable energy efficient technologies in State facilities. Allocates $250,000 per year of the State's portion of geothermal royalties to DBEDT to fund hydrogen research. Appropriates $50,000 for a statewide energy audit. Establishes a renewable energy technologies tax credit. Requires the energy resources coordinator to review and evaluate the renewable technologies tax credit. (HB288 HD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

288

TWENTY-SECOND LEGISLATURE, 2003

H.D. 1

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 renewable energy and energy efficient technologies in state facilities;

(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;

(4) Establish a renewable energy technologies tax credit; and

(5) Require the energy resources coordinator to review and evaluate the renewable energy technologies tax credit.

PART II

SECTION 2. The legislature finds that renewable energy and energy efficient technologies can provide a viable means to produce safe energy resources as well as efficiently use energy resources for various state departments and agencies. Renewable energy technologies allow electricity to be generated at the source where it is consumed and consequently provides increased energy independence and diminishes the vulnerability of state facilities from rolling blackouts, other failures of the electric grid, and the volatility of the energy market. Renewable energy offers a clean, silent, and reliable source of energy and produces energy during peak demand.

The legislature further finds that for 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 renewable energy and energy efficient technologies in its facilities 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 renewable energy and energy efficient technologies in state facilities. 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 renewable energy and energy efficient technologies in state facilities;

(2) Provide that the State will identify, evaluate, and prioritize qualifying projects that should be improved with renewable energy and energy efficient technologies; 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 installing renewable energy and energy efficient technologies.

SECTION 3. (a) The State shall finance the acquisition, construction, rehabilitation, installation, and improvement of renewable energy and energy efficient technologies in state facilities for the generation 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, and installation; subject to the consent of those state departments, agencies, or enterprises that own or control the facilities or lands on which renewable technologies and energy efficient technologies are proposed to be sited.

(c) As used in this part:

"Energy efficient technology" means a technology (such as

equipment, processes, assemblies, control methods, or the like)

that reduces the amount of input energy consumed by a process

per unit of useful output from the process compared to standard

technology. An energy efficient technology shall be cost

effective based on life cycle analysis.

"Renewable energy technology" means any new identifiable device, apparatus, system, or the like, which makes use of renewable resources for thermal or electrical energy production for heating, cooling, or reducing the use of other types of energy dependent on fossil fuel.

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 renewable energy and energy efficient technologies in state facilities pursuant to this part, including:

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

(2) An analysis of the cost to benefit ratio for the acquisition, construction, rehabilitation, installation, and improvement of renewable energy and energy efficient technologies 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 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, and installation of renewable energy and energy efficient technologies in state facilities.

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.

For these reasons, an energy policy forum made up of energy stakeholders from throughout the State was convened in 2002 by the University of Hawaii. The energy policy forum is currently undertaking a series of studies to assess options for Hawaii's long-term term energy future. These studies will look at long-term trends in fossil fuel supply; global warming; future environmental requirements on energy producers; energy regulations and incentives; alternative energy technology; energy efficiency; and social, cultural, and economic issues in Hawaii's energy policy. The energy policy forum will convene an energy policy summit in late 2003 and develop a set of recommendations on changes in energy and regulatory policy to actually move Hawaii toward the goals put forth in the State's energy policy.

In light of the availability of various generation and distribution energy systems, changing consumer preferences, environmental imperatives, technological advancements, security issues arising from September 11th, and information and recommendations to be compiled as a result of the energy policy forum, 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 findings and recommendations of the

energy policy forum and its integration into:

(A) The State's energy objectives; and

(B) Regulatory reform;

(3) 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;

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

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

(6) 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;

(7) 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;

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

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

(10) 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;

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

(12) 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 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 NCSL.

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

PART V

The purpose of this Act is to implement the recommendations of the energy-efficiency policy task force that was established by Act 163, Session Laws of Hawaii 1998, to explore and make recommendations to the legislature on the most cost-effective means of supporting increased energy efficiency and sustainability in Hawaii.

This Act, among other matters, implements certain recommendations of the task force, including:

(1) Restricting tax credits to renewable energy technologies and setting credit level and dollar caps; and

(2) Requiring the energy resources coordinator to review and evaluate the renewable energy technologies tax credit.

SECTION 17. Chapter 196, Hawaii Revised Statutes, is

amended by adding a new section to be appropriately designated

and to read as follows:

"§196-    Energy-efficiency policy review and evaluation. (a) The energy resources coordinator shall ensure that review and evaluation comparable to those accomplished by the energy- efficiency policy task force established pursuant to Act 163, Session Laws of Hawaii, 1998, are undertaken, and that findings and recommendations of the review and evaluation are reported to the legislature no later than twenty days prior to the convening of the regular session of 2011 and every seven years thereafter.

(b) The review and evaluation shall include:

(1) The efficacy of section 235-    to determine whether the tax credits should be continued or enhanced based on impact and cost-benefit analyses or other public policy considerations;

(2) Whether the energy technology systems eligible for tax credits under section 235-    should be expanded, reduced, or remain the same; and

(3) Any other issue regarding energy technology systems identified during the seven-year review.

(c) The energy resources coordinator, in undertaking the review and evaluation, shall consult with representatives from:

(1) The department of business, economic development, and tourism;

(2) The solar, wind, and photovoltaic industries;

(3) The utilities industry;

(4) The building industry; and

(5) Any other professional or public sector group the

energy resources coordinator deems appropriate."

SECTION 18. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235-    Renewable energy technologies; income tax credit. (a) Each individual or corporate resident taxpayer that 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 for every eligible renewable energy technology system that is installed and placed in service by a taxpayer after June 30, 2003. The tax credit may be claimed as follows:

(1) Solar thermal energy systems for:

(A) Single family residential property: thirty-five per cent of the actual cost or $1,750, whichever is less;

(B) Multi-family residential property: thirty-five per cent of the actual cost or $350 per family unit, whichever is less; or

(C) Commercial property: thirty-five per cent of the actual cost or $500,000, whichever is less;

(2) Wind powered energy systems for:

(A) Single family residential property: twenty per cent of the actual cost or $1,500, whichever is less;

(B) Multi-family residential property: twenty per cent of the actual cost or $200 per family unit, whichever is less; or

(C) Commercial property: twenty per cent of the actual cost or $500,000, whichever is less;

and

(3) Photovoltaic energy systems for:

(A) Single family residential property: thirty-five per cent of the actual cost or $5,000, whichever is less;

(B) Multi-family residential property: thirty-five per cent of the actual cost or $350 per family unit, whichever is less; or

(C) Commercial property: thirty-five per cent or $500,000, whichever is less;

provided that multiple owners of a single system shall be entitled to a single tax credit; provided further that the tax credit shall be apportioned between the owners in proportion to their contribution to the cost of the system.

(b) For the purposes of this section:

"Actual cost" means costs related to the renewable energy technology systems under subsection (a), including accessories and installation, but not including the cost of consumer incentive premiums unrelated to the operation of the system or offered with the sale of the system.

"Renewable energy technology system" means a system that captures and converts a renewable source of energy, such as wind, heat (solar thermal), or light (photovoltaic) from the sun into:

(1) A usable source of thermal or mechanical energy;

(2) Electricity; or

(3) Fuel.

"Solar or wind energy system" means any identifiable facility, equipment, apparatus, or the like that converts insolation or wind energy to useful thermal or electrical energy for heating, cooling, or reducing the use of other types of energy that are dependent upon fossil fuel for their generation.

(c) The dollar amount of any new federal energy tax credit similar to the credit provided in this section that is established after June 30, 2003, and any utility rebate, shall be deducted from the cost of the qualifying system and its installation before applying the state tax credit.

(d) The tax credit shall be claimed against net income tax liability for the year in which the renewable energy technology system was purchased and placed in use in Hawaii. Tax credits that exceed the taxpayer's income tax liability may be used as credit against the taxpayer's income tax liability in subsequent years until exhausted.

(e) The director of taxation shall prepare any forms that may be necessary to claim a tax credit under this section. The director may also require the taxpayer to furnish reasonable information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(f) The department shall report to the legislature annually, twenty days prior to the convening of every regular session, on the following:

(1) The number of renewable energy technology systems that have qualified for a tax credit during the past year by:

(A) Technology type (solar thermal, photovoltaic from the sun, and wind);

(B) Installation type (single family residential, multi-family residential, and commercial); and

(C) Taxpayer type (corporate and individual);

and

(2) The total cost of the tax credit to the State during the past year by:

(A) Technology type;

(B) Installation type; and

(C) Taxpayer type;

with descriptive statistics including mean, median, minimum, and maximum values and the standard deviation."

PART VI

SECTION 19. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 20. This Act shall take effect on July 1, 2003; provided that section 18 shall apply to taxable years beginning after December 31, 2002.