THE SENATE

S.B. NO.

367

TWENTY-SIXTH LEGISLATURE, 2011

S.D. 1

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO ENERGY.

 

 

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

 


     SECTION 1.  The legislature finds that attaining independence from reliance on fossil fuels is a long-standing objective of the State.  Hawaii is the state most dependent on petroleum for its energy needs.  Reducing our dependence on oil and its consequent price volatility is critical in attaining energy security.

     Hawaii has an abundance of natural, renewable energy resources from wind, solar, ocean and wave, geothermal, and bio-based fuels.  Hawaii's clean energy policy mandates and strongly promotes the use of these renewable energy resources. 

     Act 155, Session Laws of Hawaii 2009, increased the 2020 renewable portfolio standard for electric utility companies from twenty per cent to twenty-five per cent, and added a new forty per cent requirement for the year 2030.  Act 155 also included the mandate that by January 1, 2015, one hundred per cent of a utility's renewable portfolio standard needs to be met by electrical generation using renewable energy as the source.  These requirements are codified in section 269-92, Hawaii Revised Statutes.

     One of the key elements of Hawaii's energy policy concerns the desire for fixed-price indigenous renewable resources.  Fixed price indigenous renewable resources are the best hedge against rising oil prices that could return to the $147 per barrel level experienced in 2008.  In order for the State to meet its clean energy objectives, hundreds of megawatts of fixed price renewable energy must be developed in the near term.  The legislature recognizes that no single resource can provide the "silver bullet" solution as a hedge against oil price volatility.

     In order to achieve the State's aggressive renewable portfolio standard goals, electric utility companies need to target technologies that are commercially available, are capable of being developed within a near term horizon, are available on a large scale, and can be used to generate electricity that can be delivered to Hawaii's load centers.  Two categories of technologies that currently fit this description are technologies that capture solar and wind resources.  Estimates of solar and wind generation potential in the State of Hawaii exceed the total electricity demand of all of the islands in the State.

     Electrical services on the islands of Oahu, Maui, Molokai, Lanai, and Hawaii are provided by affiliated, franchised electric utility companies.  None of the electric utility systems on these islands are currently electrically interconnected to the electric utility system on any other island.

     Oahu has the largest demand for electricity and the largest concentration of the population base.  Wind power is a commercially proven source of renewable energy that is limited on Oahu but is abundant on the neighbor islands of Lanai and Molokai.  Lanai and Molokai wind projects totaling 400 megawatts of capacity have the potential to produce in the range of 1,500 gigawatt hours of energy annually given the expected capacity factors for large scale wind farms on these islands.  To contribute to attaining renewable portfolio standard goals, strategies to link Oahu's demand to abundant on-island wind and solar resources and fixed-price wind resources from the neighbor islands of Molokai and Lanai are being pursued.  Technical implementation and routing studies have been conducted that show that it is feasible to connect renewable generation facilities on Lanai or Molokai to the Oahu load using undersea high-voltage transmission cables.

     The islands of Maui and Hawaii currently have significant as-available renewable resource penetration levels, based on projects that are currently in service or that have power purchase contracts.  At the same time, they have significant potential for additional renewable resources.  There are plans to consider the use of high-voltage undersea transmission cables to link the electric utility systems on these islands to the electric utility system on Oahu.

     The State, with the support and assistance of the federal government and Hawaiian Electric Company, Inc., has been exploring for several years the technical, engineering, economic, and financial feasibility of an interisland undersea electrical transmission cable system that would be capable of transmitting wind generated electric energy from Maui County to Oahu, and believes that an undersea cable system is feasible and desirable.

     In addition, economic analyses have shown that harnessing the wind resources for the islands appears to be a relatively cost-effective means for helping to meet Hawaii's energy policy objectives.  The cost of the energy delivered to the load center is expected to be at or below the cost of other commercially available large scale renewable resources in the near-term, and at or below the cost of petroleum based generation in the longer-term.  The capital cost of developing the high-voltage electric transmission cable systems is substantial in relationship to the electric utility companies' existing rate bases and it is expected that undersea transmission cables will be installed by a non-utility investor that assumes financial responsibility for the project until it achieves commercial availability.

     The legislature also finds that the development of large scale renewable energy projects will impact the communities on which the projects are located, and that at least some of the environmental review processes conducted as part of the permitting process for the projects will occur after the public utilities commission would need to act on a cable certification application.  In order to foster communication with the affected communities and the commission, the legislature has incorporated a requirement that the commission hold a public hearing on each island connected by the high-voltage electric transmission cable system for the purposes of obtaining comments and input from interested parties.

     In order to connect undersea high-voltage transmission cables to an electric utility system, the electric utility company will need to install on-island transmission infrastructure.  In addition, because of the fixed costs of renewable energy projects relative to the variable costs of fossil fuel generation, it is expected that electric utility ratepayers will benefit if the electric utility company acquires the undersea high-voltage transmission cables at or after the commencement of commercial operations.  Given the cost of the on-island transmission infrastructure, the need to have the on-island infrastructure available when the undersea high-voltage transmission cables commence commercial operations, and the potential acquisition cost of the undersea high-voltage transmission cables, the electric utility's credit quality, which is essential to the development of renewable energy resources in Hawaii, may be negatively impacted unless specified cost recovery provisions are added to the public utilities law.

     The purpose of this Act is to establish the regulatory structure under which interisland undersea transmission cables can be developed, financed, and constructed on commercially reasonable terms, such as those upon which successful cable projects have been undertaken in New York, California, and around the world.

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

"PART      .  INTERISLAND TRANSMISSION SYSTEM

     §269-A  Definitions.  As used in this part:

     "Cable acquisition cost" means the electric utility's costs, including reasonable transaction costs, to acquire a high-voltage electric transmission cable system pursuant to a turnkey cable contract or a cable purchase contract.

     "Cable company" means any person who is selected through a request for proposal to be a certified cable company.

     "Cable purchase contract" means a contract to purchase a high-voltage electric transmission cable system after a specified period of commercial operations, pursuant to an option to purchase a power purchase agreement containing the option to purchase.

     "Cable surcharge" means the surcharge approved by the commission pursuant to section 269-D.

     "Certified cable company" means any person or persons who own or control a high-voltage electric transmission cable system; provided that the person or persons receive a certificate of public convenience and necessity from the commission pursuant to section 269-B.

     "Commercial operations" means the period after the high-voltage electric transmission cable system passes acceptance tests resulting from the request for proposal, as determined by a qualified independent engineer approved by the commission and other criteria the commission determines as reasonable.

     "Commission" means the public utilities commission.

     "Cost" means all capital investments, including rate of return; any applicable taxes; and all expenses, including capacity payments, operation and maintenance expenses, related to or resulting from the planning, licensing, permitting, designing, development, construction, or operation of a high-voltage electric transmission cable system.

     "Development period" means the period of time after the certified transmission entity has been granted a certificate of public convenience and necessity, but before commercial operation.

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

     "Electric utility system" means the electric system owned and operated by an electric utility company, including any non-utility owned facilities that are interconnected to the system, consisting of power plants, transmission and distribution lines, and related equipment for the production and delivery of electric power to the public.

     "Expected commercial operations date" means the date reasonably determined by the certified cable company for the high-voltage electric transmission cable system to commence commercial operations.

     "High-voltage electric transmission cable system" means one hundred and twenty kilovolts or greater of alternating current (AC) or direct current (DC) transmission cables constructed undersea, including connected transmission cables or lines installed on land that connect the electric utility systems on two or more islands or allow for the transmission of power from one or more renewable generation facilities to the electric utility system located on another island; AC substation or AC/DC converter station; fiber optic communication cables; and other appurtenant facilities.

     "On-island transmission infrastructure" means the modifications and additions to the existing alternating current transmission grid on an island and other electric utility system modifications needed to reliably connect a high-voltage electric transmission cable system to an electric utility system, and to reliably accept power generated from large scale renewable generation facilities and transmitted via the high-voltage electric transmission cable system.

     "Predevelopment period" means the period of time before the certified transmission entity has been granted a certificate of public convenience and necessity.

     "Renewable electricity" shall mean electrical energy generated using renewable energy as the source.

     "Renewable energy" has the same meaning as that provided in section 269-91.

     "Renewable generation facility" means a facility generating electrical energy using renewable energy as the primary source.

     "Renewable portfolio standard" has the same meaning as that provided in section 269-91.

     "Request for proposals" means the request for proposals issued pursuant to a competitive bidding process authorized by the commission to select a certified cable company and conducted by the electric utility company or companies to which the capacity of a high-voltage electric transmission cable system will be made available, with the participation and assistance of the State.

     "Turnkey cable contract" means a contract entered into pursuant to a request for proposal under which a cable company designs, builds, and transfers a high-voltage electric transmission cable system to an electric utility company upon commencement of commercial operations.

     §269-B  Certification.  (a)  Prior to installing a high-voltage electric transmission cable system, a cable company must be certified by the commission as a public utility pursuant to section 269-7.5.

     (b)  Notwithstanding any provisions in section 269-7.5 to the contrary:

     (1)  In any application for a certificate of public convenience and necessity for a high-voltage electric transmission cable system, the commission shall issue a final order within one hundred eighty days after the application is filed; provided that the commission may extend the timeline as necessary;

     (2)  The fitness of the cable company shall be determined through a request for proposal;

     (3)  In determining whether the applicant is financially fit, the commission shall allow for the use of commercially reasonable non-recourse project financing for the high-voltage electric transmission cable system;

     (4)  In determining whether the proposed transmission capacity service is or will be required by the present or future public convenience and necessity, the commission shall determine whether the high-voltage electric transmission cable system would be a cost-effective means of:

         (A)  Interconnecting two or more electric utility systems; or

         (B)  Helping one or more electric utility companies meet the applicable renewable portfolio standard;

     (5)  If the primary source or sources of the renewable electricity that will be transmitted to an electric utility company or companies using the high-voltage electric transmission cable system will be provided pursuant to a power purchase agreement or agreements between that electric utility company or companies and an owner or owners of a new renewable generation facility or facilities, the commission shall take into account the status of the power purchase agreement or agreements in reviewing and approving the application for certification;

     (6)  In the certification process the commission shall review and determine ratemaking principles appropriate for this type of project that would be applicable to the high-voltage electric transmission cable system during commercial operations;

     (7)  In determining the authorized rate of return for a certified cable company, the commission shall take into account the risks assumed by the certified cable company during the predevelopment, development, and commercial operations periods related to or resulting from the development, financing, construction, and operation of the high-voltage electric transmission cable system; and

     (8)  Prior to approving the application for certification, the commission shall hold a public hearing on each island connected by the high-voltage electric transmission cable system to obtain comments and input from the affected communities about the high-voltage electric transmission cable system.

     §269-C  Transmission tariff.  The commission shall, by order, approve the tariff of the certified cable company pursuant to which the certified cable company shall make the capacity of its high-voltage electric transmission cable system available to the electric utility company or companies.  The tariff shall be consistent with the tariff provisions resulting from the request for proposal.  The certified cable company may submit its proposed tariff for approval prior to the expected commercial operations date, and the commission shall take final action on the proposed tariff within one hundred and twenty days after submittal of the proposed tariff with supporting documentation as may be required by the commission; provided that the commission may extend the timeline as necessary.

     §269-D  Surcharge.  (a)  The commission shall establish a cable surcharge to allow recovery of the high-voltage electric transmission cable system costs designated for recovery according to the rate making principles pursuant to section 269‑B.

     (b)  Pursuant to the tariff described in section 269-C, the commission shall, by order, designate the electric utility company or companies to which the capacity of the high-voltage electric transmission cable system shall be made available as the agent of the certified cable company in order to collect the cable surcharge approved by the commission.  The electric utility company or companies collecting the cable surcharge for the benefit of the certified cable utility shall have no right, title, or interest in the moneys.  The commission shall approve a fee, to be collected by the electric utility company or companies concurrently with the cable surcharge, for acting as the collection agent for the certified cable company.

     (c)  Notwithstanding any requirements to the contrary, a high-voltage electric transmission cable system shall be deemed "used or useful for public utility purposes" upon commencing commercial operations.

     §269-E  Electric utility company acquisition of cable system.  (a)  The commission may approve an electric utility's acquisition of a high-voltage electric transmission cable system pursuant to a commission approved turnkey cable contract or cable purchase contract.

     (b)  In the case of a turnkey cable contract, the commission shall review and approve, disprove, or approve subject to conditions, the contract upon application filed by the electric utility company at the conclusion of the request for proposal.

     (c)  In the case of a cable purchase contract, the commission shall review and approve, disprove, or approve subject to conditions, the option to purchase in the same proceeding in which it reviews and approves a certificate of public convenience and necessity for a cable company providing the option to purchase or a power purchase agreement containing the option to purchase, and shall review and approve, disprove, or approve subject to conditions the cable purchase contract resulting from exercise of the option to purchase upon application filed by the electric utility company proposing to acquire the high-voltage electric transmission cable system.

     §269-F  Recovery of electric utility company capital costs.  (a)  An electric utility company shall be entitled to recover its revenue requirement resulting from the costs that it prudently incurs in acquiring a high-voltage electric transmission cable system throughout the commercial operations period after it is acquired, provided such acquisition is made in accordance with a turnkey cable contract or cable purchase contract approved by the commission.

     (b)  An electric utility company shall be entitled to recover, through an automatic rate adjustment clause, its revenue requirement resulting from the capital costs that it prudently incurs for on-island transmission infrastructure, provided the commission has approved the utility's commitment of capital expenditure costs for the project.

     (c)  In order to provide for timely recovery of the revenue requirement, the commission shall establish a separate automatic rate adjustment clause for that purpose, or modify an existing automatic rate adjustment clause.  The use of the automatic rate adjustment clause to recover the revenue requirement shall be allowed to continue until the revenue requirement is incorporated in rates in an electric utility company's rate case.

     (d)  The electric utility company's revenue requirement includes:

     (1)  The allowed rate of return as set in the electric utility company's last rate case on the utility's net investment in the high-voltage electric transmission cable system from the acquisition date of the high-voltage electric transmission cable system, and in the on-island transmission infrastructure from the date the on-island transmission infrastructure is completed and available for service;

     (2)  Depreciation; and

     (3)  Revenue taxes and other relevant costs as approved by the commission.

     (e)  The electric utility company's net investment includes the cable acquisition cost in the case of the high-voltage electric transmission cable system and the costs of planning, permitting, and constructing the on-island transmission infrastructure, including an allowance for funds used during construction where the utility finances the planning, permitting, and construction costs, less accumulated depreciation and associated unamortized deferred income taxes.

     (f)  Notwithstanding any requirements to the contrary, if the on-island transmission infrastructure is found to be necessary or appropriate to facilitate achievement of the State's renewable portfolio standards in a proceeding for approval of a commitment of capital expenditure costs for the project, no finding of used and useful for public utility purposes under section 269-16(b)3 shall be required for the electric utility to recover its revenue requirement under this section.

     (g)  If the electric utility company elects not to complete the on-island transmission infrastructure, and the commission approves such election, or is precluded from completing construction of the on-island transmission infrastructure, the electric utility shall be allowed to recover all costs prudently incurred during the predevelopment and development periods.  The electric utility shall recover these costs through the cable surcharge over a period equal to the period during which the costs were incurred or five years, whichever is greater."

     SECTION 3.  Chapter 239, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§239‑    Surcharge amounts exempt.  Amounts received in the form of a cable surcharge by an electric utility company acting on behalf of a certified cable company under section 269‑D shall not be counted as gross income of that electric utility company for purposes of this chapter; provided that any amounts retained by that electric utility company for collection or other costs shall not be included in this exemption."

     SECTION 4.  Chapter 240, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§240‑    Surcharge amounts exempt.  Amounts received in the form of a cable surcharge by an electric utility company acting on behalf of an affected certified cable company under section 269-D shall not be counted as gross receipts for that electric utility company for purposes of this chapter; provided that any amounts retained by that electric utility company for collection or other costs shall not be included in this exemption."

     SECTION 5. Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There shall be excluded from gross income, adjusted gross income, and taxable income:

     (1)  Income not subject to taxation by the State under the Constitution and laws of the United States;

     (2)  Rights, benefits, and other income exempted from taxation by section 88-91, having to do with the state retirement system, and the rights, benefits, and other income, comparable to the rights, benefits, and other income exempted by section 88-91, under any other public retirement system;

     (3)  Any compensation received in the form of a pension for past services;

     (4)  Compensation paid to a patient affected with Hansen's disease employed by the State or the United States in any hospital, settlement, or place for the treatment of Hansen's disease;

     (5)  Except as otherwise expressly provided, payments made by the United States or this State, under an act of Congress or a law of this State, which by express provision or administrative regulation or interpretation are exempt from both the normal and surtaxes of the United States, even though not so exempted by the Internal Revenue Code itself;

     (6)  Any income expressly exempted or excluded from the measure of the tax imposed by this chapter by any other law of the State, it being the intent of this chapter not to repeal or supersede any express exemption or exclusion;

     (7)  Income received by each member of the reserve components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United States of America, and the Hawaii national guard as compensation for performance of duty, equivalent to pay received for forty-eight drills (equivalent of twelve weekends) and fifteen days of annual duty, at an:

         (A)  E-1 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2004;

         (B)  E-2 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2005

         (C)  E-3 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2006;

         (D)  E-4 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2007; and

         (E)  E-5 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2008;

     (8)  Income derived from the operation of ships or aircraft if the income is exempt under the Internal Revenue Code pursuant to the provisions of an income tax treaty or agreement entered into by and between the United States and a foreign country; provided that the tax laws of the local governments of that country reciprocally exempt from the application of all of their net income taxes, the income derived from the operation of ships or aircraft that are documented or registered under the laws of the United States;

     (9)  The value of legal services provided by a prepaid legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (10)  Amounts paid, directly or indirectly, by a prepaid legal service plan to a taxpayer as payment or reimbursement for the provision of legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (11)  Contributions by an employer to a prepaid legal service plan for compensation (through insurance or otherwise) to the employer's employees for the costs of legal services incurred by the employer's employees, their spouses, and their dependents;

    (12)  Amounts received in the form of a monthly surcharge by a utility acting on behalf of an affected utility under section 269-16.3 shall not be gross income, adjusted gross income, or taxable income for the acting utility under this chapter.  Any amounts retained by the acting utility for collection or other costs shall not be included in this exemption; [and]

    (13)  One hundred per cent of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development to the association of owners under chapter 514A or 514B, or the residential cooperative corporation of the leasehold units.

          For purposes of this paragraph:

               "Fee simple owner" shall have the same meaning as provided under section 516-1; provided that it shall include legal and equitable owners;

               "Legal and equitable owner", and "leased fee interest" shall have the same meanings as provided under section 516-1; [and]

               "Condominium project" and "cooperative project" shall have the same meanings as provided under section 514C‑1[.]; and

    (14)  Amounts received in the form of a monthly cable surcharge by an electric utility company acting on behalf of a certified cable company under section 269‑D shall not be counted as gross income, adjusted gross income, or taxable income for that electric utility company under this chapter; provided that any amounts retained by that electric utility company for collection or other costs shall not be included in this exemption."

     SECTION 6. Section 269-30, Hawaii Revised Statutes, is amended by adding subsection (e) to read as follows:

"(e)  Amounts received in the form of a cable surcharge by an electric utility company acting on behalf of a certified cable company under section 269-D shall not be counted as gross income for that electric utility company for purposes of this section; provided that any amounts retained by that electric utility company for collection or other costs shall not be included in this exemption."

     SECTION 7.  In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 8.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

SECTION 9.  This Act shall take effect on July 1, 2011.

 


 


 

Report Title:

Energy; Interisland High Voltage Electric Transmission Cable System; Public Utilities Commission; Tax Exemptions

 

Description:

Establishes a regulatory scheme for the installation and implementation of an interisland high voltage electric transmission cable system and for the construction of on-island transmission infrastructure.  Allows for the utility company to collect surcharges from its ratepayers to recover the costs of the cable installation on behalf of the cable company.  Exempts the surcharges from being counted as gross income, adjusted gross income, or taxable income for tax purposes.  Provides for the eventual acquisition of the cable system by the utility company from the cable company.  Allows the utility company to recover the costs of acquiring the cable system and developing the on island infrastructure through an automatic rate adjustment clause and then through its rates.  Allows the utility to recover the costs of predevelopment and development in the event that the system is not completed.  (SD1)

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.