Renewables Portfolio Standards

Requires qualified electric utility companies to implement
renewables portfolio standards.  Requires the Public Utilities
Commission to establish a renewable energy credits program.
Allow utilities to accumulate credits.  (SD2)

THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  It is the intent of the legislature to recognize
 2 the economic, environmental, and fuel diversity benefits of
 3 renewable energy resources and to establish a market for
 4 renewable energy in Hawaii using the State's significant
 5 renewable energy resources and to drive down the cost of
 6 renewable energy to consumers.  The legislature finds that the
 7 benefits of electricity from renewable energy resources accrue to
 8 the public at large, thus consumers and electric utilities share
 9 an obligation to develop a minimum level of these resources in
10 the State's electric supply portfolio.
11      The legislature finds that one way to achieve this objective
12 is through the implementation of "renewables portfolio
13 standards" -- a flexible, market-driven policy that seeks to
14 ensure that the public benefits of wind, solar, biomass,
15 geothermal energy, and other renewable energies continue to be
16 recognized as electricity markets become more competitive.  The
17 policy ensures that a minimum amount of renewable energy is
18 included in the portfolio of electricity resources serving the
19 State.  By increasing the required amount over time, the standard

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 1 seeks to increase the sustainability of the electricity industry.
 2 Because it is a market standard, renewables portfolio standards
 3 rely almost entirely on the private market for its
 4 implementation.  Market implementation will result in
 5 competition, efficiency, and innovation that seeks to deliver
 6 renewable energy at the lowest possible cost.
 7      Renewables portfolio standards work through the
 8 establishment of renewable energy credits, which are tradable
 9 certificates of proof that one kilowatt-hour of electricity has
10 been generated by a renewable-fueled source.  Credits are
11 denominated in kilowatt-hours (kWh) and are a separate commodity
12 from the power itself.  Renewables portfolio standards require
13 all qualified electric utility companies to demonstrate, through
14 ownership of credits, that they have supported an amount of
15 renewable energy generation equivalent to some percentage of
16 their total annual kilowatt-hour sales.  For example, if
17 renewables portfolio standards are set at five per cent, and a
18 generator sells one hundred thousand kilowatt-hours in a given
19 year, the generator would need to possess five thousand credits
20 at the end of that year.
21      Investors and generators make all decisions about how to
22 comply with this requirement, including the type of renewable
23 energy to acquire, which technologies to use, what renewable

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 1 developers to do business with, what price to pay, and which
 2 contract terms to agree to.  Generators decide for themselves
 3 whether to invest in renewable energy projects and generate their
 4 own credits, enter into long-term contracts to purchase credits
 5 or renewable power along with credits, or simply to purchase
 6 credits on the spot market.  The credit system provides
 7 compliance flexibility and avoids the need to "track electrons".
 8 Because renewables portfolio standards apply equally to all
 9 generators, they are competitively neutral.
10      The legislature finds that the renewables portfolio
11 standards approach has several efficiency advantages, including
12 the following:
13      (1)  Renewables portfolio standards avoid the administrative
14           dissemination of funds by government agencies, which
15           can be bureaucratic and inefficient.  In addition,
16           government-administered programs almost always impose
17           artificial constraints of various types, which
18           increases costs;
19      (2)  Under renewables portfolio standards, no renewable
20           energy project is guaranteed a place in the market.
21           Unlike a one-time competition for funds, each project
22           must continually compete to keep its place in the
23           market created by the standard;

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 1      (3)  The certainty and stability of the renewables market
 2           created by properly-designed renewables portfolio
 3           standards will enable long-term contracts and financing
 4           for the renewable power industry, which will, in turn,
 5           lower renewable power costs;
 6      (4)  Least-cost compliance is encouraged through the
 7           flexibility provided to generators who are subject to
 8           the standard; they can compare the cost of owning a
 9           renewables facility to the cost of a credit and
10           renewable power purchase package and to secondary-
11           market credits.  Those who are most efficient at
12           generating renewable power will end up producing it,
13           and those who cannot efficiently produce it will
14           purchase credits on the competitive market; and
15      (5)  Since large generation companies will be looking to
16           improve their competitive position in the market, they
17           will have an interest in driving down the cost of
18           renewables to reduce their renewables portfolio
19           standards compliance costs.  They may do this by
20           lending their own financial resources to a renewables
21           project, by seeking out least-cost renewables
22           applications, or by entering into long-term purchasing
23           commitments.  This fosters a "competitive dynamic" that

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 1           is not achieved with policies that involve direct
 2           subsidies to renewable generators without involving the
 3           rest of the electric industry.
 4      The purpose of this Act is therefore to require qualified
 5 electric utility companies to implement renewables portfolio
 6 standards, thereby requiring these utilities to possess a minimum
 7 percentage of minimum energy resources within their overall
 8 resource portfolios, and require the public utilities commission
 9 to establish a program to issue renewable credits to renewable
10 energy generators.
11      SECTION 2.  For the purposes of this Act:
12      "Biomass" means organic residue or crops that are grown for
13 energy production.
14      "Qualified electric utility company" means a distributor of
15 electricity to customers in the State that has sales of more than
16 four hundred million kilowatt-hours of electricity per year.
17      "Renewable energy" means energy from wind, solar energy
18 systems, biomass, including waste-to-energy and landfill gas
19 recovery, geothermal resources, hydropower, or organic wastes,
20 including refuse-derived fuel.
21      "Renewable energy credit" means a tradable certification of
22 proof that one kilowatt-hour of electricity from renewable energy
23 was either:

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                                     S.B. NO.           S.D. 2

 1      (1)  Generated by a qualified electric utility company and
 2           sold to Hawaii consumers;
 3      (2)  Purchased by a qualified electric utility company from
 4           a renewable energy generator and sold to Hawaii
 5           consumers; or
 6      (3)  Purchased by a qualified electric utility company from
 7           one or more Hawaii renewable energy generators.
 8      "Renewable energy generator" means a person owning a
 9 facility that produces electricity from renewable energy.
10      "Renewables portfolio standard" means the percentage of
11 electric power consumed in Hawaii that must be derived from
12 renewable energy.
13      SECTION 3.  Each qualified electric utility company which
14 sells electricity for consumption in the State shall implement a
15 7.5 per cent renewables portfolio standard effective January 1,
16 2002, and shall increase this percentage by .25 percentage points
17 each succeeding year to a minimum of 9.5 per cent on January 1,
18 2010.  Beginning on January 1, 2010, the renewables portfolio
19 standard shall be increased by .5 percentage points each
20 succeeding year to a minimum of        per cent by January 1,
21 2020.  Any utility company which is not included in the term
22 "qualified electric utility company" may participate voluntarily.
23      SECTION 4.  The public utilities commission shall establish

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 1 a program to issue renewable energy credits to renewable energy
 2 generators by January 1, 2001.  The commission, or its duly
 3 authorized agent, shall:
 4      (1)  Inspect, certify, and audit renewable energy credits;
 5      (2)  Impose and collect a fee on renewable energy credit
 6           applicants to cover the administrative cost of issuing,
 7           recording, certifying, auditing, and monitoring the
 8           sale or exchange and tracking of renewable energy
 9           credits;
10      (3)  Enforce this Act, including the imposition of
11           administrative penalties; and
12      (4)  Adopt rules pursuant to chapter 91 to carry out the
13           purposes of this Act.
14      SECTION 5.  On or before March 30, beginning in 2002 and
15 each year thereafter, each qualified electric utility company
16 shall submit an application to the public utilities commission
17 which contains evidence of ownership of sufficient renewable
18 energy credits to satisfy the renewables portfolio standard for
19 the previous year.  An application fee shall be submitted at the
20 time of filing the application in an amount established by rule
21 to be sufficient to cover the cost to process, monitor, and
22 review the application and subsequent filings.  Evidence of
23 sufficient renewable energy credits shall be equal to the product

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                                     S.B. NO.           S.D. 2

 1 of its total electricity sales to Hawaii electricity customers in
 2 the previous calendar year, denominated in kilowatt-hours, and
 3 the renewables portfolio standard for the same year.  Renewable
 4 energy credits may only be granted for renewable energy
 5 generators located within the State.
 6      SECTION 6.  Renewable energy credits may be accumulated,
 7 sold, or exchanged by the person to whom the credits are issued
 8 or by any other person who acquires the credits.  A sale or
 9 exchange of credit shall not be valid unless recorded with the
10 public utilities commission within ninety days after the
11 conclusion of the transaction.
12      SECTION 7.  The public utilities commission may impose an
13 administrative penalty against a qualified electric utility
14 company for violating sections 3 to 6 of this Act.  Failure to
15 produce and receive approval of the required number of renewable
16 energy credits shall result in a penalty which shall be equal to
17 three times the market value of a renewable energy credit for
18 each credit that is not produced.
19      SECTION 8.  Any person may commence a civil action on the
20 person's own behalf against any of the following:
21      (1)  Any person in violation of sections 3 to 7 of this Act;
22      (2)  The public utilities commission or its duly authorized
23           agent for failure to perform any act or duty pursuant

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 1           to sections 4 to 7 of this Act that is not
 2           discretionary; and
 3      (3)  Any person applying for renewable energy credits who
 4           provides false information.
 5      SECTION 9.  The public utilities commission shall annually
 6 provide a report to the legislature that includes the activities
 7 of the commission under sections 4 to 7 of this Act, program
 8 results, data, and any recommendations to achieve increased use
 9 and availability of renewable energy in the State.
10      SECTION 10.  If any provision of this Act, or the
11 application thereof to any person or circumstance is held
12 invalid, the invalidity does not affect other provisions or
13 applications of the Act which can be given effect without the
14 invalid provision or application, and to this end the provisions
15 of this Act are severable.
16      SECTION 11.  This Act shall take effect upon its approval.