RELATING TO ENERGY.

HB974

HOUSE OF REPRESENTATIVES

H.B. NO.

974

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

relating
to energy
.

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

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SECTION 1.
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The
legislature finds that it is imperative to enable the development of affordable
clean energy resources for the benefit of utility customers in the State.
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Many existing generating units in Hawaii will
need to be retired in the next few years due to obsolescence and environmental
permitting requirements.
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The impending
retirement of these units makes it urgent to obtain replacement resources,
without which the reliability of electrical supplies in the State will be at
risk.
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In addition, continued reliance on
these aging units, even if feasible, would result in increased costs for
utility customers and continued reliance on fossil fuels, contrary to the
State's policy to transition to renewable, non-carbon-emitting resources.

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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.
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These requests for proposals implement energy
plans that are developed through extensive engagement with local stakeholders
and communities and reviewed and approved by the public utilities commission.
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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.

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The legislature also 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.

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The legislature further finds that
continued development of clean energy resources requires adequate assurances to
independent power producers that prompt and full payments for purchased power
will be made, irrespective of the financial strength of an electric
utility.
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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 finance renewable energy
projects, to raise concerns about the reliability of payment by the utility and
its subsidiaries under new power purchase agreements.
�
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.
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Either outcome would be contrary to the
interests of electric utility customers in the State.

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The legislature further finds that the
public interest could be served by the State providing limited credit support
through step-in agreements, under which the State will agree to make payments
to independent power producers in the event of a default in payment by an
electric utility.
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These agreements can
provide assurances to independent power producers that prompt and full payments
for purchased power will be made.
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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 State.

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The legislature also finds that the State's
obligations in connection with step-in agreements do not constitute contingent
liabilities of the State pursuant to article VII, section 13, clause 8, of the
Hawaii State Constitution, because the State will be vested with all ownership
of and title to revenues resulting from on-bill charges for power purchase
costs, and the full faith and credit of the State will not be pledged for
obligations under these step-in agreements.
�

In the event of a default by an electric utility on its payment
obligations, these revenues would cover all payment obligations of the State
for electric energy and related products.
�

In the absence of default, the electric utility will be authorized to
utilize these revenues to discharge its obligations to pay independent power
producers for electric energy and related products.
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The obligations of the State 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.

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Therefore, the purpose of this Act is to:

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(1)
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Allow the State to enter into step-in agreements for
payment obligations arising under new power purchase agreements entered into
between a certain investor‑owned electric utility and its regulated
subsidiaries and independent power producers;

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(2)
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Establish a trust fund within the State
treasury that shall be capitalized immediately in the event of a default to
fulfill State-backed payment obligations arising from power purchase agreements
subject to step-in agreements;

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(3)
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Establish that revenues from on-bill charges
for covered power purchase agreements and accompanying reserves shall be held
in trust by the State, and that independent power producers shall hold a
beneficial interest in the revenues and reserves to the extent they are owed under
the covered power purchase agreements; and

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(4)
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Appoint, authorize, and empower an electric
utility to serve as the billing, collection, payment, and management agent of
the department of budget and finance in the service of performing step-in
agreements.

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

"
Part

.
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STEP-IN
AGREEMENTS COVERING POWER PURCHASE COSTS

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

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"
Covered power purchase agreement"
means a power purchase agreement
that is
subject to a step-in
agreement.

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"Default" means the failure by
an electric utility to pay
power purchase costs when due to an obligee under a covered power purchase
agreement after the expiration of any applicable grace or cure periods and
extensions thereto.
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"Default"
does not mean a bankruptcy filing by an electric utility.

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"Department" means the department
of budget and finance, or any successor by law.

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"Electric utility" means a public
utility that produces, conveys, transmits, delivers, or furnishes electric
power.

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"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.

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"Fund"
means the power purchase costs trust fund established pursuant to section
269-D.

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"Investment grade status" means a
credit rating for the electric utility's senior unsecured long-term debt
obligations or an issued credit rating for the electric utility (in each case,
not supported by third party credit enhancements) from at least two out of the
three of the following:

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(1)
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At least
BBB-
or higher from S&P Global Ratings, or any successor by law;

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(2)
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At least
BAA3
or higher from Moody's Investor Services, Inc., or any successor by law; or

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(3)
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At least
BBB-
or higher from Fitch Ratings, Inc., or any successor by law.

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"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.

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"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
.

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"Power purchase charges" means
the on-bill charges
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 the
energy cost recovery
clause and the purchased power adjustment clause.
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"Power purchase charges"
do not include any
amounts for state and county revenue taxes, including any franchise tax, public
service company tax, and public utility commission fee.

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"Power
purchase costs" means costs incurred by an electric utility pursuant to
the terms of a power purchase agreement.
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"Power purchase costs" include 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.

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"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.

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"Step-in agreement" means a contract
by which the State undertakes an obligation of prompt and full payment for
power purchase costs owed to an obligee by an electric utility under a power
purchase agreement following a default
.

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"User, owner, or operator of the Hawaii
electric system" has the same meaning as defined in section 269-141.

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�269-B
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Step-in agreements.
�
(a)
�

The department shall enter into a step-in agreement with an obligee that
requires the department to make prompt and full payments for power purchase
costs owed by an electric utility to the obligee in the event of a
default.
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Upon the default, the
department shall make payments to the obligee for power purchase costs with
moneys from the fund as and when due under the covered power purchase
agreement.
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The step-in agreement shall
not be an obligation for which the full faith and credit of the State is
pledged, and an obligee shall have no claim or lien on any revenues or moneys
of the State, except for those revenues from the power purchase charges
attributable to the covered power purchase agreement.

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(b)
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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.
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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.

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(c)
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Payment by 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).

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(d)
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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.

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(e)
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Following a default of a covered power
purchase agreement and any payment by the department, the electric utility,
within its sole discretion, 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 may use the
revenue from power purchase charges as specified 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 payment default by the
electric utility.

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(f)
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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.

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(g)
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As consideration for the State entering into the
step‑in agreement, the electric utility or its successor shall enter into
an agreement to assign and transfer any ownership in and title to the revenue
from power purchase charges attributable to the covered power purchase
agreement to the department, and, under the agreement, the department shall be
deemed to be the sole holder in trust of all ownership and title to the revenue
for the benefit of the obligees under the covered power purchase agreements to
the extent the obliges are owed.
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The
revenue shall not be subject to appropriation for any other purpose.
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The revenue, if held in a depository other
than the state treasury, shall be exempt from the requirements of chapters 36
and 38.
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The electric utility or its
successor shall be obligated to bill and collect the power purchase charges and
to manage the revenue attributable to the agreement as an agent for the
department.

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(h)
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If any payment obligation of the electric
utility under a covered power purchase agreement for power purchase costs
becomes owed and due, any ownership of or title to the revenue 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 is made to the obligee.
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Any vesting of revenues to the electric
utility when payment obligations are owed and due may be made without
appropriation or allotment by the legislature.
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The department may not otherwise assign, sell, or transfer any ownership
of, or title to, any claim or right to the revenue from power purchase
charges.
�

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(i)
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To meet the requirements of the State and the public utilities
commission as it pertains to electric reliability, energy security, and energy
diversification under this chapter and any rules adopted pursuant thereto, an
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.
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The department shall exercise its regulatory
powers to ensure that an electric utility complies with its obligations under
the covered power purchase agreements.

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(j)
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Notwithstanding
any other law to the contrary, an 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:

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(1)
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Generate
sufficient revenue to timely and fully pay amounts when owed and due under
covered power purchase agreements; and

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(2)
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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
reserve established under section 269-E.
�

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To achieve the objectives established
pursuant to this subsection, unless the public utilities commission otherwise
directs, the electric utility may retain revenue collected in excess of amounts
owed and due under the covered power purchase agreement.
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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).
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(k)
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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).
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The electric utility shall implement the
power purchase charges in the substitute submission from the department.

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�269-C
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Default of electric utility; successor
requirements.
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(a)
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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.
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Two days after the electric utility receives the
notice, the electric utility shall turn over all revenues from power purchase
charges arising from any covered power purchase agreements identified in the
notice, regardless of when collected, then in its possession, and all future
revenues from the power purchase charges thereafter collected, to the fund as
directed by the department; provided that the amounts shall include revenues
received by the electric utility after a default for power purchase charges
billed before the default that were intended to be used to pay power purchase
costs arising from the covered power purchase agreement.
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The department shall use the revenue from the
power purchase charges, including the revenues turned over, only in the order
as follows:

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(1)
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To
pay power purchase costs pursuant to a step-in agreement, subject to the
appointment, authorization, and empowerment of the electric utility as an agent
as described in section 269-F(e); and

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(2)
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To
implement a rate credit to customers for revenue in excess of amounts owed
under the covered power purchase agreement.

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(b)
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Any step-in agreement shall remain in full
force and effect notwithstanding any bankruptcy, reorganization, or other
insolvency proceedings with respect to the electric utility.

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(c)
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The obligation of an electric utility to
collect and remit the power purchase charges 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.

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(d)
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Any successor to an electric utility shall be
bound by the requirements of this part.
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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 to bill and collect the power purchase charges and
remit the collected revenue to the department in connection with any covered
power purchase agreement, unless and until the step-in agreement is terminated
as described in section 269‑B(d).

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(e)
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If the credit rating of the electric utility
or its successor achieves investment grade status, then by operation of law,
any ownership of and title to the revenue from power purchase charges
attributable to the covered power purchase agreement shall immediately divest
from the department and vest in the electric utility or its successor; provided
that the electric utility or its successor shall thereafter be the sole owner
and 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 manage the revenue
as an agent for the department, and, if applicable, to remit the collected
revenue to the fund, shall terminate.

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�269-D
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Power purchase costs trust fund.
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(a)
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There is established in
the state treasury the power purchase costs trust fund into which shall be
deposited a
ll proceeds of the power purchase charges to be paid in the
event of a default of a covered power purchase agreement by the electric
utility.

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(b)
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Moneys
in the fund shall be administered and held by the department in trust for the
benefit of obligees of covered power purchase agreements to the extent the obligees
are owed.

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(c)
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If the credit rating of the electric utility
or its successor achieves investment grade status, the fund shall cease to
receive any revenue from the power purchase charges collected by that electric
utility and shall pay to the electric utility or its successor the remainder of
any moneys in the fund; provided that the moneys in the fund shall be
considered revenue of the electric utility.

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�269-E
�

Power purchase costs reserve fee; establishment.
�
(a)
�
By
August 1, 2025, the public utilities commission shall authorize a surcharge
proposed by an electric utility, referred to as the power purchase costs
reserve fee, the revenue from which shall be accorded the same treatment as
revenue from power purchase charges as described in section 269-B(g).
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The power purchase costs reserve fee may be
included in the purchased power adjustment clause on customer bills.

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(b)
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The power purchase costs reserve fee shall be collected and maintained
to establish a reserve in an amount not to exceed fifteen per cent of the
forecasted monthly power purchase costs of all covered power purchase
agreements.

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(c)
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In the event of default pursuant to section 269-C(a), all previously
collected revenues and all future revenues from the power purchase costs
reserve fee shall be accorded the same treatment as revenues from power
purchase charges as described in section 269-C.

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(d)
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Notwithstanding subsection (c), if the credit rating of the electric
utility or its successor achieves investment grade status and the step-in
agreement terminates pursuant to section 269-B(d), all moneys remaining in the
reserve collected from the power purchase costs reserve fee shall be returned,
together with any associated interest earned, to customers through a rate
credit.

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(e)
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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.

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�269-F
�
Electric utility; agent of the department.
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(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 on
terms and conditions that reasonably compensate the electric utility or its
successor for its incremental cost to provide services, and adequately secure
payment to the department.

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(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).

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(c)
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The act of serving as an agent to bill and to
collect the power purchase charges shall not cause any electric utility to be
subject to the laws that regulate financial institutions, escrow depositories,
or collection agencies.
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An electric
utility shall not be responsible for lending, underwriting, and credit
determinations in respect to these billing and collection activities.

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(d)
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To the extent any moneys are received by an
electric utility pursuant to subsection (a) or section 269-B(g), in the process
of collection, and pending their transfer to the department, those moneys shall
be held in trust for the department's exercise of its obligations pursuant to
this part.

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(e)
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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
State, to manage and pay out moneys, including from the fund, for fulfillment
of payment obligations of the State arising from covered power purchase
agreements.
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The appointment shall terminate
when the step-in agreement for the covered power purchase agreements terminates
pursuant to section 269-B(d)."

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SECTION 3.
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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.

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SECTION 4.
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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.

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SECTION 5.
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This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

Report Title:

BNF; Public
Utilities Commission; Energy; Step-In Agreements; Power Purchase Agreements; Power
Purchasing Costs Trust Fund

Description:

Allows
the State to enter into step-in agreements for payment obligations arising under
certain power purchase agreements.
�

Establishes the Power Purchasing Costs Trust Fund.
�
Establishes that revenues from on-bill
charges for power purchase agreements and accompanying reserves shall be held
in trust by the State, and that independent power producers shall hold a
beneficial interest in the revenue and reserve to the extent of the amounts
owed under the covered power purchase agreements.
�
Appoints, authorizes, and empowers an
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.

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