Report Title:

Energy; Distributed Generation Owners General Partnerships Established

 

Description:

Authorizes the public utilities commission to establish distributed generation owners general partnerships.

 

THE SENATE

S.B. NO.

1261

TWENTY-FIRST LEGISLATURE, 2001

 

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 early electric generation facilities were located at or near where the power was needed. In the late 1880s, Thomas Edison built the first power plant designed to provide power locally to New York City's Wall Street region. Similarly, in Honolulu, the first powerplant was a run-of-the-stream hydroelectric facility on Nuuanu Stream. Hydroelectric generated electricity powered Iolani Palace and downtown Honolulu.

Centralized generation is an alternative approach developed in the early part of the 20th century. Utilizing economy of scale, electric utilities began building larger plants located at a distance from electricity-demand centers. Transmission systems were built to bring this power from where it was produced to where it was needed.

The centralized plants produced power with three different types of generators: baseload (which produce a constant level of output); peaking (which are turned on and off daily to provide increased supply in the afternoon and evening); and cycling (to provide peak power during the one or two days of intense demand).

To handle sudden increases in demand, the available supply has to be greater than the current demand. On Oahu, for example, the generation system has the capacity to generate 1660 MW. The average usage is about 825 MW while the all-time greatest usage has been 1220 MW.

The legislature further finds that modern distributed generation systems range from photovoltaics and fuel cells to gas turbines and diesel engines in residential, commercial, and industrial applications, including primary power and back-up power. They can operate in conjunction with, or independently of, the electric grid. Hotels and commercial establishments in Waikiki have 50 MW of backup generators. Residential and business customers have some photovoltaic (solar-electric) systems. MECO owns back-up generators located at Hana, Maui, and HELCO owns a grid-connected photovoltaic generator on the Kailua-Kona Gymnasium. HECO, MECO, and HELCO have sun power for schools photovoltaic systems on schools, although the total installed on all school roofs totals less than 0.03 MW. The military also employs distributed generators.

Distributed generation reduces the loss of electricity through transmission; is aesthetically more pleasing; offers increased reliability; provides alternative sources of power during emergencies; is modular (new systems are sized to meet demand instead of being built for anticipated demand in 20 years); delays or defers the need for new generation, transmission, and distribution; improves power quality and reliability on transmission and distribution lines (voltage support, source of reactive power, and power factor correction); increases reliability; and offers greater diversity to businesses and residents.

Distributed generation utilizing traditional fuels such as oil and gas are also more effective than utility generators because they efficiently use both electricity and heat. For example, the Pohainani Retirement Home in Kaneohe determines the amount of heat that is needed, and produces electricity as a by-product. That system is twice as efficient as utility generators in the conversion of oil and gas into usable end products. As a result, the overall costs drop and the amount of pollution caused is significantly less than centralized generation. The reduced costs associated with distributed generation are paid for by those who desire such systems. Tourists pay part of the cost for back-up generators in hotels, businesses pay for systems located at their location, grants and ratepayers pay for back-up generators and grid-connected applications on the utility grid, and taxpayer pay for backup systems in police stations and hospitals.

The Hawaii public utilities commission was established in 1913 to regulate the electric industry monopoly. The public utilities commission was reorganized and strengthened in the mid 1970s to deal with modern complexities of regulated monopolies, including the electric industry. The public utilities commission process is designed to guarantee a reasonable profit to the utility while ensuring the public interest is protected.

Currently, utilities, as mandated by the public utilities commission, must provide electricity to anyone who wants it. Utilities are known as the provider of last resort. The utility must maintain generation and transmission capabilities to handle any sudden demand for energy should a problem develop with a distributed generation system and the owner of such a system asks the utility for electricity.

The utility is able to recover its capital costs (investments in infrastructure) plus a reasonable profit. The cost per customer is a product of the total amount of investment that is recoverable as defined by the public utilities commission, the customer class (residential, commercial, etc.), and the amount of electricity used by the customer.

When a large customer leaves the grid, utilities must redistribute the cost of their capital investments over a smaller ratepayer base, through higher electric rates. To avoid this impact on the remaining ratebase, utilities have a number of options. Two financial measures can be adopted by utilities:

(1) The customer leaving the grid can be charged an "exiting fee"; and

(2) If the exiting customer wants to be guaranteed electric service in the event that their private distributed generation system fails, the utility can charge a "stand-by fee" to the exiting customer.

While highly unlikely, a catastrophic disaster with unusual characteristics might occur. Under this scenario, every private distributed generation facility might go off line simultaneously, while the utilities generation, transmission & distribution could survive unscathed. In this case, under current law, since the utility is required to offer power to anyone requesting it, each distributed generation facility could turn to the utility and demand electricity. The utility must have sufficient capacity to handle this sudden increase in demand, including redundant and duplicative generation, transmission, and distribution to cover the unusual circumstances.

The utility charges a stand-by charge that is often very close in monetary value to what the utility would charge the customer for electricity if the customer did not leave the grid. Thus the stand-by charge is sufficiently large as to make the idea of leaving the grid uneconomical for many companies.

The purpose of this Act is to create a market mechanism whereby owners of distributed generation systems can feel secure about leaving the grid, even if their systems occasionally fail, while, at the same time, utilities are protected from having to maintain stand-by generation. Specifically, the Act:

(1) Authorizes creation of general partnerships known as "distributed generation owners general partnerships";

(2) Allows distributed generation owners general partnerships to lease the utilities transmission and distribution system, and to pay a tariff to the utility to allow the transfer of electricity between members of the distributed generation owners general partnership; but

(3) Does not require the utilities to provide electricity to the distributed generation owners general partnerships.

Under normal conditions, no electricity transfers would occur between members and the electric grid. Should the distributed generation system of one member go off-line, that member may purchase a block of electricity from another member of the general partnerships. The utility owning the transmission and distribution lines would be electronically notified of the start time, the finish time, the size of the transfer, the location of the supplier, and the location of the demander. The electric grid would experience a simultaneously offsetting addition and withdrawal of electricity from the grid. There would be no net effect on the grid, and the utility would receive a tariff for the use of the grid.

In addition, the distributed generation owners general partnerships shall file an application with the public utilities commission for official recognition, and shall comply with all sections of state law dealing with general partnerships, pursuant to chapter 425, Hawaii Revised Statutes. A fee may be imposed by the public utilities commission to cover the costs of the public utilities commission associated with regulating distributed generation owners general partnerships. There is no limit to the number of distributed generation owners general partnerships that may approved by the public utilities commission. The public utilities commission shall regulate only the external characteristics of the general partnership; that is, the interactions between the General Partnership and the utility grid.

The public utilities commission would be informed of the members of the distributed generation owners general partnerships. One or more general partnerships members might be residential, commercial, industrial, governmental, military, independent power producers, other distributed generation owners general partnerships and/or other types of entities. The internal arrangement between members is up to the distributed generation owners general partnerships.

The public utilities commission may establish, through a public utilities commission generic docket, a reasonable tariff for the use of utility transmission lines, subtransmission lines and distribution lines. Utilities and other interested parties may intervene in the public utilities commission docket to determine the tariff rates. The tariff will include a reasonable cost and profit to the utility for use of the line, and a reasonable fee to the public utilities commission.

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

"§269- Distributed generation owners general partnerships. (a) The public utilities commission shall authorize the establishment of distributed generation owners general partnerships.

(b) A member of a distributed generation owners general partnerships may be an independent power producer.

(c) The public utilities commission shall establish a tariff fee for the use of the utilities transmission and distribution system by the distributed generation owners general partnerships. The fee may vary by time of use, size of the transfer, the number of transfers, the use of transmission, subtransmission, and, or distribution lines, and any other reasonable variable.

(d) The public utilities commission shall regulate the tariff fee for the use of the utilities transmission and distribution system by the distributed generation owners general partnerships.

(e) The public utilities commission shall not regulate the internal policies, cost structures, or membership of distributed generation owners general partnerships.

(f) The public utilities commission shall impose a fee on distributed generation owners general partnerships to cover the costs of regulation; provided that the fee shall be revenue neutral.

(g) Utilities are not required to provide stand-by power to distributed generation owners general partnerships."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:

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