Blue Planet Foundation's policy advocacy seeks to drive systemic change by constructing the framework for markets and behavior—“institutional acupuncture. ” We engage in lawmaking at the state capitol and county councils and rulemaking at the Public Utilities Commission. By working with other clean energy advocates, experts, and community and business leaders, we can develop smart policy solutions that will enable Hawaii to achieve energy independence. Read More

2012 LEGISLATIVE WRAP-UP

The 2012 legislative session ended May 3, with mixed results for clean energy. The main three key actions taken by the legislature with Blue Planet’s support were passage of the Hawaii Electricity Reliability Administrator and the interisland cable regulatory bill, and confirmation of Mike Champley and Lorraine Akiba to the Public Utilities Commission.
 
Hawaii Electricity Reliability Administrator (HERA)
The priority clean energy policy this session was SB 2787, which establishes the Hawai‘i Electricity Reliability Administrator, or HERA. As more independent power producers and distributed energy systems plug into the grid, they face numerous technical, operational, and regulatory issues presented by Hawai‘i's century-old electrical system. These obstacles hinder interconnection and compromise reliability, stifling the potential of renewable energy production. The HERA policy establishes formal, objective, and verifiable reliability and interconnection standards for Hawai‘i’s electricity grids. Having an independent entity—not the electric utility—set the “rules of the road” for reliability and interconnection would enable increased integration of renewables and greater system predictability and resiliency. Senate Bill 2787 passed 74-1-1.

Interisland Cable Regulatory Structure
Senate Bill 2785 establishes a regulatory structure for the installation and implementation of an interisland high-voltage electric transmission cable system, bringing it under the governance of the PUC. Having a regulatory framework for the implementation of an interisland cable system will ensure more certainty and oversight in the development process. Hawaii’s islands have varying amounts of technologically acquirable renewable energy resources and an uneven distribution of electricity demand based on population and economic activity. Maui, for example, has surplus wind energy at night, while Oahu has an expanding fleet of electric vehicles that could put that energy to work. Legislation to establish a regulatory framework for the implementation of an interisland cable system can provide more certainty, stability, and oversight in the development process. By providing structure for a statewide electrical grid we can get the most out of our state's abundant solar, wind, and geothermal energy resources. Senate Bill 2785 passed 67-9 (although 15 “with reservations”).  
 
Public Utilities Commission (PUC) Appointments
The Senate confirmed the nominations of both Michael Champley and Lorraine Akiba to the PUC. We believe both will be strong advocates for aggressive clean energy regulatory policy. Mike Champley served as Blue Planet’s expert consultant for two years. During his work with Blue Planet, Champley was instrumental in identifying and suggesting modifications to practices that impede the integration of renewable energy. He understands the complex economic, institutional, and operational changes that must happen to enable Hawai‘i’s clean energy transition. Lorraine Akiba will bring broad experience (in public and private law sectors) and energy to the PUC while balancing the skills and expertise of the existing commissioners.  
 
Other Legislative Issues
Unfortunately, we were unable to advance some other key issues this session. Policies that fell by the wayside included reallocation of the barrel tax (and expansion to include coal), renewable energy tax credit reform, and additional PUC policy guidance (related to curtailment provisions and variable rate of return for renewable integration).  
 
In particular, Blue Planet spent a good deal of effort in a measure to reform the renewable tax credit, largely in response to proposed bills thatwould have severely reduced the credit. The challenge has been the “success” of the existing 35% credit and the explosive growth of residential and commercial PV (as well as the utility-scale wind). It’s estimated that the credit could cost the state budget upwards of $60 million this year and much more in 2013.

Blue Planet took a couple of approaches to this threat. First, we asked former UH economist Thomas Loudat to analyze what the credit yields to the state in terms of job creation, income tax, GET, oil savings, and other ancillary benefits. Read the report here. An op-ed, co-authored by Jeff Mikulina and Thomas Loudat, was published in the Honolulu Star-Advertiser. We then worked on formulating a new incentive structure for the tax credit—one that converts most of the more substantial incentives from investment credits to production credits (rewarding the actual renewable kWh instead of the equipment cost). This also had the effect of spreading the credit over 10 years, reducing the one-year budget hit. We made some other changes as well, ratcheting back the residential and commercial PV from 35% to 20% over 3 years, eliminating the confusing “system” caps, and sunsetting the credit in 2018 (providing a predictable glide path for the industry). Although the tax credit reforms didn’t pass this session, we had good agreement among legislative leadership and most of the key players in the renewable energy industry, setting us up for next session.

Hawaii Electricity Reliability Act Gives the Public Utilities Commission the explicit authority to develop, adopt, and monitor electricity reliability standards, including jurisdiction over how independent power producers connect to the grid.

 

Renewable Energy Tax Credit Renewable energy tax credits have been very successful in promoting private investment in Hawaii's clean energy future. The growth of renewable businesses creates jobs and provides steady revenue. Lawmakers should oppose proposals that dramatically alter this policy.

 

Barrel Tax Disbursement These measures tap the source of our problem—imported oil—to help fund clean energy solutions. Some bills increase the barrel tax while others change the disbursement of the revenue to different programs.

 

Grid Modernization and Interconnection The state’s electrical grid system requires modernization to accommodate renewable power, and the islands must be interconnected to move green electrons between them. Given Hawaii’s population distribution and the landscape of renewable energy potential, the islands cannot “go it alone” to achieve statewide energy independence.

 

PUC Special Fund The PUC is charged with developing and enforcing policies that govern the lifeblood of Hawaii’s economy: electricity. While the Legislature realigns the barrel tax appropriation for its intended purpose, it should also make sure that the PUC special fund — monies collected from regulated utilities — fully funds the PUC.

 

White tags A program to establish an energy efficiency credit-trading program would bring the power of the markets to foster investment in these low-risk investments. The legislature should direct the PUC to develop these market-based mechanisms (dubbed “white tags” as an efficiency component to the renewable energy “green tags”) to promote the least-cost energy efficiency investments.

 

BLUE PLANET FOUNDATION View ON HAWAII ENERGY POLICY

Blue Planet Foundation's policy advocacy seeks to drive systemic change by constructing the framework for markets and behavior—“institutional acupuncture.” We engage in lawmaking at the state capitol and county councils and rulemaking at the Public Utilities Commission. By working with other clean energy advocates, experts, and community and business leaders, we can develop smart policy solutions that will enable Hawaii to achieve energy independence.

Let us consider what policy changes are essential to making Hawaii's clean energy future a reality.

If we were to sit down today and design — from scratch — an energy system for Hawaii, it’s unthinkable that we’d choose one that relies on a steady supply of Middle Eastern oil and Indonesian coal. Nor would we craft a system that places control of Hawaii’s electricity in a single entity whose bottom line is indifferent to whether the energy source is sustainable.

Yet that is precisely where we find ourselves today. Hawaii has the most oil-dependent and most expensive electricity in the nation, requiring an uninterrupted flow of some million barrels of oil monthly. Electricity is largely controlled by a utility that receives scant financial benefit in plugging into clean energy sources, particularly if those sources are widely distributed.

Achieving the preferred system of energy self-sufficiency for Hawaii — one where wind and solar are no longer considered “alternative” energy — requires intelligent, transformative policy. Fortunately, lawmakers have the opportunity to remove some of the myriad institutional, regulatory, and financial barriers blocking Hawaii’s clean energy future. New policies are needed to separate power generation from distribution, encourage financial innovation in clean energy investment, provide independent oversight of grid reliability and interconnection, and allow for the recovery of costs for unused fossil power plants.

Why are these policy changes required?

Nearly three years have passed since the state launched the Hawaii Clean Energy Initiative, ostensibly a game-changing effort to transition Hawaii “decisively and irreversibly away from imported fossil fuel.” While the increased energy focus, federal assistance, and project facilitation has been valuable, the Initiative is hindered by having to operate within the current institutional and regulatory paradigm — a paradigm that is at odds with an energy future powered by non-fuel renewable energy sources.

Existing laws give the utility little economic incentive to pursue clean energy projects. Long-term utility profits are tied mostly to capital investments that the utility makes, encouraging them to purchase expensive new plants or undertake major upgrades to existing ones. Since third-party renewable energy projects displace the need for utility investments, and energy efficiency reduces electricity use, the utility does not profit directly from such clean energy initiatives.

Further, adding substantial amounts of renewable energy and energy efficiency will render existing fossil generation facilities useless, leaving the utility holding the bag with “stranded” investments on its books. Finally, when the utility purchases power from independent power producers, like large solar farms, the utility is exposed to additional financial risk (something it can’t afford, given its current credit rating of triple-B minus, one notch above junk bond status). These institutional barriers — decreasing sales on top of increasing costs to enable a system that doesn’t help their bottom line — make change incredibly difficult for the utility.

What’s needed here is “institutional acupuncture.” The Public Utilities Commission (PUC) should be directed to implement a “performance incentive mechanism” to reward the utility for achieving clean energy goals. This will give Wall Street reasons to invest in the utility and help fund Hawaii’s clean energy transition. The PUC should also be given guidance to adopt a policy allowing for the recovery of the utility’s “stranded assets,” preventing these facilities from becoming anchors that restrain clean energy progress.

Changes also need to be made on a broader scale. Hawaii’s current utility regulatory structure is a holdover from the 19th century. A vertically integrated monopoly that controls all aspects of electricity generation, transmission, and distribution no longer makes sense in a world where entrepreneurial independent power producers (including homeowners and business owners), enabled by technological advances, can develop Hawaii’s renewable energy resources.

Solar photovoltaic (PV), for example, is rapidly evolving. The installed cost of PV in Hawaii has decreased 25 percent since 2008, and the cost of energy storage (necessary to make solar a complete solution) has dropped 8 percent annually. Given such rapidly accelerating advancements, further investment in the existing electricity model is akin to repairing an old VHS player instead of developing the capacity for streaming video.

Today’s policy should contemplate tomorrow’s innovations. This is best achieved by replacing utility control of grid access with control by a neutral entity tasked with establishing reliability and interconnection rules that encourage clean energy development in all appropriate forms. Such a third-party oversight model for grid access has succeeded elsewhere in democratizing power production. Beyond that, a new framework should be adopted to separate energy generation from transmission and distribution, enabling the utility to focus on the smart grid and the management and delivery of clean, reliable electricity.

Failing this, the utility will continue to stumble over real-world hurdles to embracing clean energy. Or it will attempt to transition within the existing paradigm. Take, for example, the utility’s push to replace oil with biofuel in its existing generating units. That swap allows it to avoid fundamental change (while passing on any increased fuel costs to ratepayers). But the result may thwart Hawaii’s overall transition to clean energy by taking away liquid biofuels from the transportation sector — where other renewables, such as solar and wind, are out of reach. If biofuels can be sustainably and economically produced locally, they should be put to work powering our cars, trucks, ships, and airplanes — not stationary power plants. A state policy clarifying this preference for biofuels would help prevent solving one energy problem at the expense of another.

Finally, the long-term planning, development, and implementation of Hawaii’s clean energy future requires dedicated funding. In 2010, the legislature enacted one of the first carbon taxes in the nation, tapping the source of our problem — imported oil — to help fund renewable energy solutions. Unfortunately, only 25 percent of the additional $1 per barrel tax is directed to Hawaii’s clean energy transition, about $5.5 million annually. Compare that investment with the more than $70 million in tax dollars that Hawaii dedicates to tourism. Yet we spend upwards of $6 billion — almost half of what tourism brings in — to pay for foreign fuel. The barrel tax should be significantly expanded to provide ample funding for Hawaii’s clean energy transformation.

Hawaii’s energy independence won’t result from tweaking the edges of an increasingly obsolete regulatory scheme. It will prevail only if empowered by forward-thinking policy dedicated to a robust, modern power system that fosters innovation and puts Hawaii’s clean, indigenous, and renewable energy sources to work for Hawaii’s people.