Who Pays the Vig on DOE Loan?

posted in: September 2017 | 0

When Gov. David Ige signed House Bill 957 into law, the Hawai‘i Green Infrastructure Authority was mandated to give an interest-free $46.4 million loan to the state Department of Education. The money is to pay for energy-efficiency improvements to public schools in the Hawaiian Electric service area (the counties of Honolulu, Maui, and Hawai‘i).

The fact that the loan is to be interest- free means that it will be ratepayers – not taxpayers – who are on the hook for the interest on the bonds floated when the Green Energy Market Securitization fund was established.

At one of the hearings held on the bill, legislators wanted to know if there might be a problem with this. Gregg Kinkley, the deputy attorney general giving legal advice to HGIA, allowed as how there “may be policy issues involved,” but, “as long as all the changes are consistent and the bond-holders aren’t impaired, and debt service isn’t touched, it’s not unconstitutional. All the rest is policy. In terms of legality, it’s not illegal on its face.”

Luis Salaveria, head of the Department of Business, Economic Development, and Tourism, and also chair of HGIA’s board, said that the measure could yield $5 million a year in savings on the DOE’s energy bills.

No one at the legislative hearing men- tioned the cost to the ratepayer, but the sub- ject did arise as the HGIA’s board discussed it on June 29. According to minutes of that meeting, HGIA member Kalbert Young, a former administrator of the state Department of Budget and Finance, said he supported the request that HGIA loan the DOE the $46.4 million, “because the Legislature has effectively compelled the authority to provide an interest free loan to the DOE; however, he

[Young] has reservations because the issuance of an interest free loan is not a sound financial practice when the GEMS bond has interest obligations.”

“Chair Salaveria shared that while it appeared the original intent of [the] bill was for the authority to assess interest to cover its bond costs plus administrative overhead, the argument from a policy perspective on whether the ratepayer pays for the DOE’s requested retrofits via the green infrastructure fee or the taxpayer pays for it as the DOE is a general funded public entity, that the two groups (ratepayer vs. taxpayer) are closely congruent.

“The chair duly noted Member Young’s reservations. He also stated that while HGIA is still obligated to repay ratepayer funds, for the record, it is his position that this interest free loan to the DOE should not put pressure on HGIA to burden the remaining corpus of the funds by having to increase interest rates in order to recoup interest not assessed to the DOE.”

So, while HGIA does not intend to increase the interest rates its charges to parties taking out GEMS-backed loans, the portion of interest paid to bondholders by Hawaiian Electric customers will inevitably rise.

— Patricia Tummons

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