GEMS – the state’s Green Energy Market Securitization program – has a problem: It just can’t figure out how to spend the $144 million or so it has in the bank. But it keeps trying.
Although the law setting up this program was intended to help low-income utility customers and other economically disadvantaged sectors share in the benefits of renewable energy technology, the Hawai`i Green Infrastructure Authority (HGIA), which manages GEMS, attempted in July to expand the pool of potential beneficiaries with a proposal to fund energy-saving initiatives of large corporations, with a minimum loan amount of $1 million. Among the possible recipients are the very utilities whose customers are paying interest and principal on the GEMS bonds in the first place.
The authority also proposed including energy storage systems (batteries, mostly) as a technology eligible for GEMS financing.
In addition, the HGIA launched in July an “open solicitation for financing arrangements.” This invites “clean energy industry participants to propose transactions involving partnership” (sic) with the HGIA, particularly “transactions that utilize funds to further [HGIA’s] high-impact, market-based strategy to deploy clean energy infrastructure financing that will expand access and affordability of clean energy.”
All this activity came just days in advance of the HGIA lodging with the Public Utilities Commission (PUC) its report for the calendar quarter ending June 30, 2016. As of that date, just 12 loans, having a face value of $385,453, had been issued, leaving a balance of $144,661,025.67 in the GEMS fund.
Despite the HGIA’s fervid efforts to push money out the door, the gatekeepers at the Public Utilities Commission have pushed back. In response to the two proposals made in late July to allow financing of energy storage systems and broaden the pool of loan recipients, the PUC has put the brakes on both, pending further justification.
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Battery Loans Nixed
On July 22, the HGIA notified the PUC of the proposed change to its consumer loan product, which would have added energy storage equipment to the list of eligible technologies.
In explaining the need for this, the HGIA pointed out how last fall the PUC had eliminated net-energy metering as a consumer option, replacing it with a grid-supply option (fully subscribed on Maui and about 90 percent subscribed on the Big Island, as of last month), and a customer self-supply option (CSS). Under the latter, no energy may be exported to the utility grid, making the ability to store energy a critical part of any self-supply system.
Given this, the HGIA noted, “to create economic value for most ratepayers, PV installations under CSS require a device that stores excess electricity generated during the day, and then discharges the stored electricity in the evening.” With financial institutions “traditionally slow to offer financing for new technologies,” the HGIA stated, “there is an opportunity for the GEMS program to supply capital for this inevitable transition towards PV and energy storage.”
Anticipated demand-response programs (where the utility can commandeer an energy storage system to feed into the grid) and time-of-use rates would make energy storage even more of a boon, the HGIA argued. The demand-response programs would lessen “the burden on the utility to deliver immediate electricity during severe load spikes.” The time-of-use rates would allow customers to effect savings by drawing on their stored energy during times when rates are highest. (Neither a demand-response nor a time-of-use program has been approved by the PUC. In July, the commission ordered the HECO utilities to implement a demand-response program by January 1, 2017. Rates based on time of use are being considered in a separate PUC docket on distributed energy. Hawaiian Electric filed its most recent proposal for a time-of-use program with the PUC last November. Since then, there has been little action on that particular issue, one of many under consideration in the same docket.)
In effect, the HGIA argued, the energy-storage loans would be a win-win for all parties. They would help the utilities, the HGIA said, by encouraging customers “to stay grid-connected…. Without these incentives [time-of-use and demand response], customers may elect to entirely disengage from the grid to the detriment of all ratepayers. … Thus, through financing energy storage, HGIA enables the ratepayer continued access to renewable resources in a manner that is cost effective, expands the GEMS portfolio, furthers the state’s 100 percent [renewable portfolio standards] goal, and aids underserved markets.”
‘Unlikely Benefit’
Under the operating terms for GEMS set out when the PUC first approved the program in September 2014, whenever the Hawai`i Green Infrastructure Authority proposes or changes a loan product, it files a “program notification” with the commission and other parties to the docket, including the state Division of Consumer Advocacy.
For the next 15 business days, the other parties may submit comments. At the end of that period, if the PUC does not rule otherwise, the program change can take place.
The consumer advocate, Jeffrey Ono, stated in his comments that he was not swayed by the efforts of the HGIA to find a benefit in the proposed change to allow financing of energy storage products with GEMS loans, finding that the HGIA’s arguments fell far short of providing the required market analysis: “The lack of quantitative analysis related to the market assessment and cost/benefit requirements fails to provide the commission a reasonable basis to allow the proposed program modification.”
In fact, the consumer advocate went on to say, “the proposed program modification is highly unlikely to benefit underserved customers and may adversely impact both participants and non-participants. As a result, until it can be demonstrated that the proposed modification is in the public interest, including appropriate measures consistent with assisting the underserved markets, the consumer advocate cannot support the proposed modification.”
On August 12, the PUC agreed with the consumer advocate that the analysis was deficient. In an order issued that day, it informed the HGIA that the proposed loan program for energy storage was being suspended “pending HGIA’s response to the comments and concerns filed by the Division of Consumer Advocacy.”
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The Expanded World
Of Commercial Loans
More than a year ago, in July 2015, the PUC received notice from HGIA of its commercial loan product for energy efficiency projects. Eligible recipients were “nonprofit organizations and small businesses” served by Hawaiian Electric – small, but not so small as to fail to qualify for a GEMS loan in the minimum amount of $1 million.
A year later, with zero small business and nonprofit loans having been issued and the agency selected to manage these loans having quit, the HGIA proposed to expand the eligibility list of to include the universe of everything other than natural persons: every nonprofit organization, business, government agency, and municipality would now, assuming PUC approval, be able to apply for a GEMS energy efficiency loan, so long as the recipient was tethered to a HECO grid and was qualified to take on a loan of at least $1 million.
In justifying the change, the HGIA seems to abandon any pretext that GEMS is to help the economically disadvantaged. It points out that the previous commercial energy efficiency guidelines – limited to nonprofits and small businesses, as defined by the federal Small Business Administration – “does not sufficiently capture Hawai`i’s commercial energy market.” A study done by a consultant for the Department of Business, Economic Development, and Tourism back in 2014, before the GEMS program was approved by the PUC, found that the commercial sector accounted for 52 percent of statewide electricity consumption.
By opening up eligibility to all commercial enterprises, the HGIA states, the GEMS commercial energy efficiency loan product “can significantly reduce the amount of electricity purchased in Hawai`i. The authority therefore redefines ‘eligible participants’ … to include any nonprofit, small business, or other commercial enterprise.”
But “commercial enterprise” to HGIA means much more than it might to the average layperson. HGIA has expanded the definition to include all government agencies and municipalities (presumably, counties) served by Hawaiian Electric utilities.
Just how attractive a GEMS loan will be to large corporations or “municipalities” and government agencies is questionable. The HGIA states, without elaboration, that “renewable energy infrastructure and efficiency improvements by government agencies are limited.”
“GEMS therefore has significant potential to serve this market with its commercial EE loan product,” the HGIA claims. “For example, municipalities service all the water/wastewater and street lighting in the state, and therefore are responsible for a large portion of the state’s electric load.” (In fact, there are many private water and wastewater utilities in Hawai`i.)
Opening up the energy efficiency loans to “municipalities,” HGIA says, “can further the state’s 100 percent RPS [renewable portfolio standard] goal” while decreasing their operating costs. Even though low-interest bonds are usually available for government-sponsored capital projects, the authority goes on to say, “there is a limit to the amount of financing that municipalities can utilize without damaging their credit rating. Municipalities therefore find value in utilizing alternate funding strategies to keep debt capacity in reserve and preserve their credit rating. An energy services agreement [ESA] … funded in part by GEMS is ‘off-credit’ and will not impact a municipality’s credit rating or debt capacity.”
In broadening the scope of GEMS loan eligibility, HGIA also is entering territory that has in the past been served by the Hawai`i Energy program, funded by ratepayers through the public benefits fund. In a footnote, the HGIA acknowledges that “the underlying goal of the PBF is to procure electric energy savings from efficiency programs…. The Hawai`i Energy program maintains incentive portfolios for both residential and customer classes…. [G]overnment agencies that are commercial utility customers fall under the PBF commercial customer class and are eligible to take advantage of the Hawai`i Energy commercial incentive programs.”
But while there is recognition of the overlap with Hawai`i Energy, the HGIA proposal states only that the authority “will coordinate with Hawai`i Energy and the Public Benefits Fund administrator to ensure that resources are allocated efficiently in pursuit of commercial EE projects.”
‘A Decision to Ignore…’
A certain weariness can be read in the tone of the consumer advocate’s comments on the HGIA’s proposal to expand the commercial loan product. Noting that the HGIA recognized in its proposal the need to provide market assessments and cost-benefit analyses for any non-photovoltaic energy technology, the consumer advocate writes, “There is little discussion … regarding market assessment and no discussion regarding why an expansion of the eligible participant base is reasonable and consistent with the primary intent of the GEMS program. In fact, unlike other program notifications, HGIA did not even provide a separate section that discusses its market assessment.”
“HGIA should provide a quantitative analysis of its market assessment to support the assertion that the proposed program modification is reasonable and consistent with the GEMS objectives of assisting the underserved,” the consumer advocate goes on to say.
Regarding the missing cost-benefit analysis, the consumer advocate acknowledges that “there are energy efficiency measures that can be cost-effective and provide positive net present value to program participants.” However, the HGIA proposal has “no analysis … that illustrates the bill impact of the use of GEMS financing for the proposed products and measures for the additional proposed customers.”
The consumer advocate also faults the HGIA for its vagueness with respect to the Public Benefits Fund. Although the HGIA says it will coordinate with the PBF administrator, the consumer advocate notes, the HGIA “provides no details regarding how GEMS financed projects will be distinct from Hawai`i Energy’s projects, including whether there is any overlap in targeted customers, or how HGIA plans to work with Hawai`i Energy to ensure that there are no duplicative costs, efforts, or programs.”
The comments conclude: “At this time, the consumer advocate is concerned with the proposed modification … which does not appear to be consistent with the intent of the primary objective of GEMS funding and could actually diminish the funds available for interested underserved customers….”
Once again, the PUC concurred with the consumer advocate. In an order issued on August 15, it suspended the HGIA’s proposed expansion of its commercial energy efficiency loan base until the HGIA responds “to the comments and concerns filed by the Division of Consumer Advocacy.”
Environment Hawai`i asked Tara Young, HGIA’s executive director, when the revised program notifications for the consumer loan product and the commercial energy efficiency loan product might be resubmitted to the PUC. Young had not responded by press time.
— Patricia Tummons
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