HOUSE OF REPRESENTATIVES

H.B. NO.

2490

TWENTY-SIXTH LEGISLATURE, 2012

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 electricity generation projects in Hawaii that require external financing must typically enter into one or more long-term power purchase agreements with an electric utility before investors will provide financing. For financial rating agencies that observe and evaluate the effect of these power purchase agreements, including Standard & Poor's, such contracts represent the transfer of business viability risk assumption from the project developer to the electric utility. To properly calculate a contracting utility's new level of debt-related risk, this transfer of risk assumption further causes the financial rating agencies to represent, or impute, the impact of a power purchase agreement to the contracting electric utility's balance sheet in the form of a new debt obligation. This new obligation is typically referred to as imputed debt or debt equivalence.

Rating agencies may impute to a utility's debt level an amount up to fifty per cent or more of the existing payments on a power purchase agreement, resulting in significant amounts of imputed debt hampering a contracting utility's debt rating and impeding that utility's debt financing. Compensating factors, including legislative provisions for the mitigation of imputed debt on utility companies' balance sheets, are important variables in either raising or lowering debt equivalence levels. Without an available offsetting mechanism, imputed debt obligations on electric utilities for electricity generation projects can ultimately have a major chilling effect on energy development, especially in states pursuing ambitious renewable energy goals.

Reducing the imputed debt obligations of electric utilities can benefit electric utility customers by maximizing the utilities' ability to negotiate low cost, fixed price renewable energy contracts. In addition, the elimination of power purchase agreement-created imputed debt obligations of a utility can lower capital costs for that utility, which helps to mitigate energy costs for consumers through lower rates.

The purpose of this Act is to authorize the public utilities commission to allow electric utilities operating within the State to recover through an adjustable surcharge, capacity, operations, maintenance, and other costs that are binding obligations incurred from commission-approved power purchase agreements.

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

"269- Power purchase agreements; cost recovery for electric utilities. All power purchase costs, including costs related to capacity, operations and maintenance, and other costs that are incurred by an electric utility company arising out of power purchase agreements that have been approved by the public utilities commission and are binding obligations on the electric utility company, shall be allowed to be recovered by the utility from the customer base of the electric utility company through one or more adjustable surcharges, which shall be established by the public utilities commission. Costs shall be allowed to be recovered if incurred as a result of power purchase agreements unless, after review by the public utilities commission, any costs are determined by the commission to have been incurred in bad faith, out of waste, out of an abuse of discretion, or in violation of law.

For the purposes of this section, "electric utility company" means a public utility as defined under section 269-1, operated for the production, conveyance, transmission, delivery, or furnishing of electric power."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2012.


 


 

Report Title:

Debt Equivalence; Imputed Debt; Utility Companies; Cost Recovery

 

Description:

Authorizes the Public Utilities Commission to allow electric utility companies to recover power purchase costs and costs arising from power purchase agreements that have been approved by the public utilities commission through an adjustable surcharge, thus mitigating associated imputed debt or debt equivalence. Effective July 1, 2012. (HB2490 HD1)

 

 

 

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