Bill Text: HI HB974 | 2025 | Regular Session | Amended
Bill Title: Relating To Energy.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced) 2025-02-20 - The committee on FIN recommend that the measure be PASSED, UNAMENDED. The votes were as follows: 14 Ayes: Representative(s) Yamashita, Takenouchi, Grandinetti, Holt, Hussey, Keohokapu-Lee Loy, Kitagawa, Kusch, Lamosao, Lee, M., Miyake, Morikawa, Templo, Reyes Oda; Ayes with reservations: none; Noes: none; and 2 Excused: Representative(s) Alcos, Ward. [HB974 Detail]
Download: Hawaii-2025-HB974-Amended.html
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HOUSE OF REPRESENTATIVES |
H.B. NO. |
974 |
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THIRTY-THIRD LEGISLATURE, 2025 |
H.D. 1 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO ENERGY.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
The procurement of replacement clean energy resources by a certain investor-owned electric utility and its electric utility subsidiaries is ongoing in its Stage 3 request for proposals and further anticipated in its first Integrated Grid Planning request for proposals. These requests for proposals set forth energy plans that have been developed through extensive engagement with local stakeholders and communities and reviewed and approved by the public utilities commission. The legislature finds that successful procurement of clean energy resources is in the public interest and necessary to avoid significant detrimental reliability and affordability impacts to electric utility customers.
The legislature further finds that the development of clean energy resources by independent power producers is essential to achieve the State's goals of one hundred per cent net electricity sales from renewable sources by 2045, a zero emissions economy by 2045, and greater energy security and energy diversification, as established by the Hawaii state planning act and existing public utility laws.
The legislature also finds that continued development of clean energy resources requires adequate assurances that payments for purchased power will be made to independent power producers as and when due by the utility under power purchase agreements. The current sub‑investment‑grade status of a certain investor-owned electric utility and its subsidiaries, arising from the tragic events that occurred in the 2023 Maui wildfires, has led independent power producers, and those who would otherwise finance renewable energy projects, to raise concerns about the reliability of payment by the utility and its subsidiaries under power purchase agreements procured through the Stage 3 and Integrated Grid Planning requests for proposals. Those concerns may cause independent power producers to cancel renewable energy projects or increase the prices they would charge for deliveries to address this perceived credit risk. Either outcome would be contrary to the interests of electric utility customers in the State.
The legislature further finds that the public interest would be served if the department of budget and finance enters into step-in agreements with independent power producers, pursuant to which the department of budget and finance would agree to make payments to the independent power producers after a failure by an electric utility to make required payments pursuant to the terms of the power purchase agreements. The department of budget and finance's obligation to make payments pursuant to the terms of a step-in agreement is limited solely to the revenues associated with a power purchase agreement subject to a step-in agreement. Neither the full faith and credit of the State, nor any other moneys of the State, will be pledged for any obligations under a step-in agreement.
The legislature finds that step-in agreements may provide assurances that payments for purchased power will be made to independent power producers as and when due by the utility under the covered power purchase agreements. The legislature also finds that the intent of this Act is further served by appointing, authorizing, and empowering the electric utility to serve as the billing, collection, payment, and management agent of the department of budget and finance. Prior to a payment default by the electric utility, the electric utility will be authorized to utilize such revenues to discharge its obligations to pay independent power producers for electric energy and related products. The obligations of the department of budget and finance under this Act are undertaken for a public purpose, namely, the protection of public health, safety, and welfare by supporting the development of clean energy resources that are needed for the reliable provision of electric supply at a reasonable cost.
Therefore, the purpose of this Act is to:
(2) Establish a trust fund outside the state treasury that shall be capitalized by revenues from a surcharge supporting a reserve account and, in the event of a default, by revenues from power purchase charges, in each case associated with covered power purchase agreements, for the fulfillment of payment obligations arising from the power purchase agreement;
(3) Establish that revenues collected from on-bill charges associated with covered power purchase agreements and revenues from a surcharge supporting a reserve account shall be held in trust by the State, and that independent power producers shall hold a beneficial interest in the revenues to the extent of the amounts owed to such independent power producers under the covered power purchase agreements; and
SECTION 2. Chapter 269, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:
"Part
. STEP-IN
AGREEMENTS COVERING POWER PURCHASE COSTS
§269-A Definitions. As used in this part:
"Covered power purchase agreement"
means a power purchase agreement that is subject to a step-in
agreement.
"Default" means the failure by an electric utility to pay
power purchase costs as and when due to an obligee under a covered power
purchase agreement after the expiration of any applicable grace or cure periods
and extensions thereto.
"Default" does not mean a bankruptcy filing by an electric
utility.
"Department" means the department
of budget and finance, or any successor by law.
"Electric utility" means a public
utility that produces, conveys, transmits, delivers, or furnishes electric
power.
"Energy cost recovery clause"
means the provision, or other equivalent, in an electric utility's rate
schedules that allows the electric utility to recover its costs of fuel,
expenses, and related taxes for energy costs of power purchased under a power
purchase agreement.
"Fund"
means the power purchase costs trust fund established pursuant to section
269-D.
"Investment grade status" means a
credit rating for the electric utility's senior unsecured long-term debt
obligations or an issuer credit rating for the electric utility, in each case, without
regard for third-party credit enhancements, from at least two out of three of
the following:
(1) BBB- or higher for S&P Global Ratings, or
any successor by law;
(2) BAA3 or higher by Moody's Investor Services,
Inc., or any successor by law; or
(3) BBB- or higher by Fitch Ratings, Inc., or any
successor by law.
"Obligee" means any user, owner,
or operator of the Hawaii electric system that is owed payment of power
purchase costs by the electric utility under a power purchase agreement.
"Power purchase agreement" means a contract between an electric utility and a user,
owner, or operator of the Hawaii electric system, approved by the public
utilities commission, pursuant to which the electric utility agrees to
purchase, and the user, owner, or operator of the Hawaii
electric system agrees to sell, electric energy and related products produced
by plants
or facilities that have not provided, sold, or transmitted electricity to the
electric utility before July 1, 2025.
"Power purchase charges" means
the on-bill charges, excluding reserve fees, authorized by the public
utilities commission to be imposed on and collected from all existing and
future customers of an electric utility or any successor for power purchase costs, including but not limited to the energy cost recovery
clause and the purchased power adjustment clause.
"Power
purchase costs" means costs incurred by an electric utility pursuant to
the terms of a power purchase agreement.
"Power purchase costs" includes all categories of costs
recoverable under the energy cost recovery clause and the purchased power
adjustment clause under its respective tariffs in effect on July 1, 2025.
"Purchased
power adjustment clause" means the provision, or other equivalent,
in an electric utility's rate schedules that allows the electric utility to
recover expenses and related taxes for non-energy costs of power purchased
under a power purchase agreement.
"Reserve fees" means the
surcharges described in section 269-E(a).
"Revenue" means moneys from power
purchase charges and reserve fees net of any applicable taxes or government
fees, including but not limited to the franchise tax, public service company tax,
and public utility commission fee.
"Step-in agreement" means a
contract by which the department undertakes the obligation of payment for power
purchase costs owed to an obligee as and when due by an electric utility under
a power purchase agreement following a default, as described in section
269-B(a); provided that the department's payment obligation under such step-in
agreement is limited solely to the revenues from power purchase charges and
reserve fees collected in connection with the covered power purchase
agreements.
"User, owner, or operator of the
Hawaii electric system" has the same meaning as in section 269-141.
§269-B Step-in agreements. (a)
The department shall enter into a step-in agreement with an obligee that
requires the department to make payments for power purchase costs owed by an
electric utility to the obligee in the event of a default. Pursuant to such step-in agreement and upon
the default, the department shall make payments to the obligee for power
purchase costs with moneys from the fund as and when due by the electric
utility under the covered power purchase agreement; provided that any such step-in
agreement shall provide that the department's payment obligation thereunder
shall be solely limited to the revenues from power purchase charges and reserve
fees collected in connection with the covered power purchase agreements. Each step-in agreement shall include a clause
stating that neither the full faith and credit of the State nor any other moneys
of the State will be pledged for any obligations pursuant to the terms of a
step-in agreement. An obligee of a
covered power purchase agreement shall have no claim or lien on any moneys of
the State, except for those revenues from the power purchase charges and
reserve fees attributable to covered power purchase agreements.
(b) The department shall enter into a step-in
agreement only if the power purchase agreement subject to the step-in agreement
arises from the Stage 3 request for proposals under docket number 2017-0352
before the public utilities commission or the first Integrated Grid Planning
request for proposals issued under docket number 2024-0258 before the public
utilities commission. The department
shall enter into a step-in agreement when the power purchase agreement subject
to the step-in agreement is executed, or if the power purchase agreement has
already been executed as of July 1, 2025, as soon as reasonably possible.
(c) The payment obligation of the department
under a step-in agreement shall commence not later than two days after the date
of a notice from the department to the electric utility pursuant to section
269-C(a).
(d) The step-in agreement shall terminate when
the credit rating of the electric utility or its successor achieves investment
grade status or by express agreement of the obligee, department, and electric
utility. Upon termination of a step-in
agreement, the department shall have no obligation to the electric utility or
the obligee upon a default by the electric utility.
(e) Following a default of a covered power
purchase agreement and any payment by the department, the electric utility, through
agreement with all obligees of its covered power purchase agreements, may elect
to resume payments for power purchase costs owed by the electric utility,
regardless of the credit rating of the electric utility at that time, in which
case the electric utility shall cease to turn over revenues from power purchase
charges collected in connection with the covered power purchase agreement to
the power purchase costs trust fund as described in section 269-C(a), and may
use the revenues from power purchase charges through the vesting of title in
the electric utility as described in subsection (h); provided that the payments
shall not terminate the step-in agreement, which shall remain in effect until
terminated pursuant to subsection (d), and the department shall remain
obligated to pay the obligee upon a subsequent default by the electric utility.
(f) The department may impose other conditions,
and may include other terms, in a step-in agreement that it deems necessary to
implement the requirements of this part; provided that the conditions and terms
shall not be inconsistent with the covered power purchase agreement.
(g)
As consideration for the department entering into the step‑in
agreement, the electric utility or its successor shall enter into an agreement
to assign and transfer title to the revenues from power purchase charges and
reserve fees attributable to the covered power purchase agreement to the
department to be held in trust for the benefit of the obligees under the
covered power purchase agreements to the extent of the amounts owed to such
obligees. The revenues shall not be
subject to appropriation for any other purpose.
The revenues shall be exempt from the requirements of chapters 36 and
38. The electric utility or its
successor shall be and remain at all times, even upon the occurrence and during
the continuance of a default by the electric utility or its successor, obligated
to bill and collect the power purchase charges and reserve fees and manage the
revenues as an agent for the department to effectuate the purposes of this part.
(h) Prior to default, if any payment obligation
of the electric utility under a covered power purchase agreement for power
purchase costs becomes owed and due, any title held by the department in trust to
the revenues from power purchase charges for the payment obligation owed and
due shall divest from the department and vest in the electric utility or its
successor at the time the payment by the electric utility or its successor is
made to the obligee. Any vesting of
revenues to the electric utility at the time of payment may be made without
appropriation by the legislature or allotment.
The department shall not otherwise assign, sell, or transfer any title
to, or any claim or right to, the revenues from power purchase charges or
reserve fees.
(i) To meet the requirements of the State and the public utilities commission as they pertain to electric reliability, energy security, and energy diversification under this chapter and any rules adopted pursuant thereto, the electric utility shall ensure that it maintains sufficient availability of electric energy and related products, to the extent provided by an obligee in accordance with a covered power purchase agreement. The public utilities commission shall exercise its regulatory powers to ensure that the electric utility complies with its obligations under the covered power purchase agreement.
(j) Notwithstanding any other law to the contrary, the electric utility shall file with the public utilities commission, and the public utilities commission shall allow to become effective, monthly rate adjustments provided under the energy cost recovery clause and purchased power adjustment clause to establish or adjust power purchase charges in a manner designed to:
(1) Generate sufficient revenues to timely and fully pay amounts when owed and due under covered power purchase agreements;
(2) Ensure that in no event shall revenues fall below the amounts owed and due under covered power purchase agreements by a sum that exceeds the amounts in the power purchase costs reserve fund established under section 269-E; and
(3) Recover any applicable taxes and government fees and any incremental administrative costs of the department incurred to implement the requirements of this part.
To achieve the objectives established pursuant to this subsection, unless the public utilities commission otherwise directs, the electric utility may retain revenues collected in excess of amounts owed and due under the covered power purchase agreements. The obligations of the electric utility and of the public utilities commission under this section shall survive any default by the electric utility and shall terminate only upon the termination of the step-in agreement as provided in subsection (d).
(k) If the electric utility fails to timely file any submission as described in subsection (j), the department shall promptly file, and the public utilities commission shall allow to become effective, a substitute submission as if the submission had been filed by the electric utility under subsection (j). The electric utility shall implement the power purchase charges in the substitute submission from the department.
§269-C Default of electric utility; successor
requirements.
(a) If the obligee provides
notice to the department of a default of a covered power purchase agreement,
the department shall provide the electric utility notice of the default. Two days after the electric utility receives
the notice, the electric utility shall turn over all revenues from the power
purchase charges and reserve fees arising from any covered power purchase
agreements identified in the notice, regardless of when collected, then in its
possession, and, subject to section 269-B(e), all future revenues from the
power purchase charges and reserve fees thereafter collected to the fund
established pursuant to section 269-D(a). These amounts shall include all revenues
received by the electric utility after a default for power purchase charges and
reserve fees billed before the default.
The department shall use the revenues collected from the power purchase
charges and reserve fees, including the revenues turned over, only in the order
as follows:
(1) To pay power purchase costs pursuant to step-in agreements, subject to the appointment, authorization, and empowerment of the electric utility as an agent as described in section 269-F(e), and for revenues in excess of amounts owed under covered power purchase agreements;
(2) To recover any incremental administrative costs of the utility or the department incurred to implement the requirements of this part; and
(3) To implement a rate credit to customers.
(b) Any step-in agreement shall remain in effect
notwithstanding any bankruptcy, reorganization, or other insolvency proceedings
with respect to the electric utility.
(c) The obligation of the electric utility to
collect and remit the revenues from power purchase charges and reserve fees pursuant
to the requirements of this part shall not be subject to any setoff,
counterclaim, surcharge, or defense by the electric utility, or in connection
with a bankruptcy of any electric utility.
(d) Any successor to an electric utility shall be
bound by the requirements of this part.
The successor shall perform and satisfy all obligations of the electric
utility in the same manner and to the same extent as the electric utility,
including the obligation upon default to bill and collect the power purchase
charges and reserve fees and remit to the fund the revenues collected in
connection with any covered power purchase agreement, unless and until the
step-in agreement is terminated as described in section 269‑B(d).
(e) If the step-in agreement is terminated as
described in section 269-B(d), then by operation of law, any title to the revenues
from power purchase charges and reserve fees attributable to the covered power
purchase agreement shall immediately cease to be held in trust and the electric
utility or its successor shall thereafter be the sole holder of title or
beneficial and equitable interest in, and any claim or right to, the revenue,
and the obligation of the electric utility or its successor to bill and collect
the power purchase charges and reserve fees and manage the revenues as an agent
for the department, and, if applicable, to remit the collected revenues to the
fund, shall terminate.
§269-D Power purchase costs trust fund. (a) There is established outside
the state treasury the power purchase costs trust fund to be administered by
the department. The electric utility
shall deposit into the fund all revenues collected in connection with covered
power purchase agreements from:
(1) Power purchase charges in the event of a default of covered power purchase agreements; and
(2) Reserve fees.
(b)
Moneys in the fund shall be held by the department in trust for the
benefit of obligees of covered power purchase agreements to the extent of the
amounts owed to such obligees. The
department's payments from the fund shall be made without appropriation or
allotment, as provided in section 37-40.
(c) If the step-in agreement is terminated as
described in section 269-B(d), the fund shall cease to receive any revenues
from the power purchase charges collected by the electric utility or its
successor and the department shall pay to the electric utility or its successor
the remainder of any moneys in the fund attributable to power purchase
charges. Those moneys shall be
considered revenues of the electric utility or its successor.
§269-E Reserve account; establishment. (a) By August 1, 2025, the public utilities commission shall authorize surcharges proposed by an electric utility, referred to as reserve fees. Reserve fees may be included in the purchased power adjustment clause on customer bills. The department shall establish and maintain a separate account to accept and account for revenues from reserve fees as part of the fund established under section 269-D, and the electric utility shall promptly deposit all revenues collected from reserve fees into the account. The utility shall not otherwise assign, sell, or transfer any title to, or any claim or right to, the revenues from reserve fees, except as provided under this part.
(b) Reserve fees shall be collected and maintained to establish a reserve account in an amount not to exceed the total of fifteen per cent of the forecasted monthly power purchase costs of all covered power purchase agreements plus an amount sufficient to recover costs related to administration of the reserve account and any applicable taxes and fees.
(c) If the step-in agreement terminates pursuant to section 269-B(d), reserve fees collected in connection with the covered power purchase agreement shall cease to be collected, and all moneys remaining in the fund attributable to the reserve fees shall be returned in full, together with any associated interest earned, to customers through a rate credit.
(d) In the special circumstances of this part, the legislature finds and declares that the reasonable reserve requirement of article VII, section 13, clause 8 of the Hawaii State Constitution, to the extent applicable, has been satisfied.
§269-F Electric utility; agent of the department. (a) To
implement the requirements of this part, the department may contract with an
electric utility or its successor to act as an agent of the department to
provide billing, collection, payment, management, and other related services.
(b) At the request of the department, the public
utilities commission shall order an electric utility or its successor to
perform the duties pursuant to a contract under subsection (a).
(c) The act of serving as an agent to bill and to
collect the power purchase charges and reserve fees shall not cause any
electric utility to be subject to the laws that regulate financial
institutions, escrow depositories, or collection agencies. An electric utility shall not be responsible
for lending, underwriting, and credit determinations in respect to these
billing and collection activities.
(d) To the extent any revenues are received by an
electric utility pursuant to subsection (a) in the process of collection and
pending their transfer to the fund pursuant to section 269-D(a), those moneys
necessary to timely and fully pay amounts when owed and due under covered power
purchase agreements shall be held in trust for the department's exercise of its
obligations pursuant to this part.
(e) To implement the requirements of this part, the director of finance may appoint, authorize, and empower the electric utility, as agent for and on behalf of the department, to manage and pay out moneys, including from the fund, for fulfillment of payment obligations of the department arising from covered power purchase agreements. The appointment shall terminate when the step-in agreement is terminated as described in section 269-B(d)."
SECTION 3. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.
SECTION 4. 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 5. This Act shall take effect on July 1, 3000.
Report Title:
BNF; Public Utilities Commission; Energy; Step-In Agreements; Power Purchase Agreements; Power Purchase Costs Trust Fund
Description:
Requires the Department of Budget and Finance to enter into step-in agreements for payment obligations arising under certain power purchase agreements. Establishes the Power Purchase Costs Trust Fund. Establishes that revenues from on-bill charges for power purchase agreements and revenues from a surcharge supporting a reserve account shall be held in trust by the State, and that independent power producers shall hold a beneficial interest in the revenues to the extent of the amounts owed under the covered power purchase agreements. Appoints, authorizes, and empowers the electric utility to serve as the billing, collection, payment, and managing agent of the Department of Budget and Finance in the service of performing step-in agreements. Effective 7/1/3000. (HD1)
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