Once More, Green Infrastructure Agency Is Attempting to Remove PUC Oversight

posted in: September 2017 | 0

If at first you don’t succeed…

With the Hawai`i Green Infrastructure Authority (HGIA) having failed to win the Legislature’s approval of a bill to relieve it of Public Utility Commission oversight, it is now trying to get the PUC to bow out on its own accord.

The HGIA is the state authority charged with lending out Green Energy Market Securitization (GEMS) funds secured by surcharges on bills sent to Hawai`i Electric customers. As Environment Hawai`i has documented over the last two years, the authority has faced a series of challenges in carrying out its charge, with the result that only a few million of the $146 million originally available to lend out to people wanting to install energy-saving technology has actually been distributed. And of that, much has gone not to households who have had difficulty obtaining conventional financing, as the Legislature intended when it set up this program, but rather to large commercial property owners.

On July 21, HGIA filed a motion with the PUC seeking to modify the PUC’s order of September 30, 2014, that set out the framework for HGIA’s operation. Whenever HGIA seeks to add a “product” (a category of loan addressing a particular type of technology or customer), it needs to file a “project notification” with the PUC.  So far, it has filed 11 project notifications. Whenever HGIA might want to modify the structure of the program beyond the scope of the original order, it would need to file a “program modification” request. The July 21 motion is the first program modification HGIA has sought.

In both cases, the PUC is able to veto the change sought. The state Consumer Advocate, as a necessary party to the proceeding, is required to weigh in on the proposals, and the original parties to the proceeding are also invited to comment. These are Hawaiian Electric utilities, Life of the Land, Blue Planet Foundation, Hawai`i Solar Energy Association, and the Hawai`i Renewable Energy Alliance. (That last organization has recently disbanded.) Public comment can also be submitted, but that rarely occurs.

Now HGIA is asking the PUC to eliminate provisions requiring both program notifications and program approvals.

During the 2017 legislative session, the HGIA lobbied hard for a bill that, among other things, would have removed most of the PUC’s oversight of the agency. (For details, see the cover story in our May 2017 issue.) The bill made it to a conference committee, but in the end didn’t pass out.

At the same time as the bill was being heard, Gwen Yamamoto Lau, HGIA’s executive director, filed an annual plan for fiscal year 2018 in which she voiced at some length her dissatisfaction with the need to report to the PUC and obtain its blessing for program changes. Indeed, she laid much of the blame for HGIA’s dismal progress in distributing GEMS funds at the PUC’s doorstep.

The motion filed in July with the PUC recaps many of the gripes that Yamamoto Lau expressed in the annual plan.

The requirement for program notification, HGIA states in its July motion, “was envisioned as a communication tool to provide updates and inform the commission prior to implementation of any key program component … and to report and certify information on implementation of key program components.” Instead, by having to wait for PUC approval of the notifications, the HGIA is unable to “nimbly” respond to changes in the energy-efficiency market.

“[T]he models and programs originally contemplated in the initial Program Order … are no longer sufficient to achieve the projected GEMS program impact…,” according to the July motion drafted by HGIA deputy attorney general Gregg Kinkley. “Accordingly, the authority is requesting a modification to [the 2014 order] to eliminate the Notification/Modification Process and instead empower HGIA’s Board to govern the Authority’s loan program, enabling it to react in a nimble and timely manner to market changes and demands.”

The motion paints HGIA staff (all employees of the Department of Business, Economic Development, and Tourism) as plucky survivors as the bombs fall around them: “According to Winston Churchill, ‘Success consists of going from failure to failure without loss of enthusiasm.’ Perhaps a benefit of having a high (employee) turnover is that new employees bring new enthusiasm and perspectives to a struggling program.” Elsewhere, the motion describes the turnover: “HGIA, which has only 5.5 authorized positions (3 for programs and 2.5 support staff) has had significant employee turnover (3.1x) during its 33 month history…. (program: 4 executive directors and 9 program officers; support: 1 administrative services coordinator and 3 executive assistants).”

One of the struggles that those employees are said to face is “the risk of being ‘raided’ and disbanded during every legislative session” and working for what has been labeled a “failed loan program.” Whatever else HGIA is, its funding is hardly at risk of being raided by the Legislature, inasmuch as it is not a government fund at all; in addition, HGIA’s own operating budget comes not from general funds but from GEMS. As for being disbanded, that, too, isn’t going to happen: the bonds that were issued to fund GEMS aren’t going to be paid off for another generation.

In any case, the motion says, “a concerted effort has been made to fill vacant positions with seasoned bankers with demonstrated business development and customer service skills and the technical expertise required to understand the complexities and risks of administering a loan fund.”

The Response

The Blue Planet Foundation, whose executive director, Jeff Mikulina, sits on HGIA’s board, filed comments supportive of HGIA’s motion. The ability of HGIA “to nimbly” – there’s that word again – navigate around challenges is “frustrated by the dual system of regulatory oversight,” referring apparently both to the PUC and to the HGIA board. (Never mind that self-regulation is not really oversight.) It concurs with the claim of HGIA that PUC oversight has erected “barriers that have slowed effective deployment of loans.” The Hawai`i Solar Energy Association also supported the move. (Life of the Land did not submit comments.)

The Hawaiian Electric utilities were much more cautious, noting that while the companies “support the continued success of the GEMS program, … there may be unintended consequences in eliminating the program notification/modification process.”

“In particular, it is unclear whether HGIA’s requested elimination of the program notification and modification process can be accomplished given statutory requirements, particularly where financing products have the potential to have significant impact on the companies’ customers and electric grid,” Hawaiian Electric stated.

It went on to note that the statute authorizing the GEMS program “requires the authority to submit an application to the commission for approval of any proposed loan program. … Commission oversight of the GEMS program is therefore a foundational aspect of the GEMS statute, especially since the green infrastructure fund is funded through the green infrastructure fee assessed on all customers.”

The Division of Consumer Advocacy also weighed in, noting that the 2014 PUC order “was based on a framework that was meant to provide the commission the ability to exercise its fiduciary responsibilities to ratepayers while allowing HGIA to be responsive to market factors.”

“Notwithstanding the Legislature’s recognition that the state would be best served by a program that [is] subject to regulatory guidelines and approval and the commission’s clear statement that a governance structure allowing the commission to exercise its fiduciary duties to utility ratepayers would be reasonable, HGIA, through its motion, seeks the elimination of the notification/modification process, but does not offer any alternative nor narrative as to how ratepayer interest would be protected. The consumer advocate is concerned that, if the motion is granted as is, the interests of the customers and ratepayers of the Hawaiian Electric Companies will not be adequately served.”

Instead of filing a formal response to the HGIA proposal, the consumer advocate proposed that the PUC suspend action on the motion to give interested parties time to see if a compromise could be worked out, with a suggested deadline of August 31.

HGIA agreed to this, but objected to the consumer advocate’s characterization of its proposal. “While HGIA is requesting the elimination of the notification/modification process, it is not requesting the removal of the PUC’s regulatory oversight,” the HGIA stated. The existing reporting requirements “would remain intact,” it said.

Speaking of Reports…

Whether reporting requirements are the equivalent of oversight is debatable, but in any case, on July 31, the HGIA submitted its required (for now) quarterly report to the PUC, for the period ending June 30. As with previous reports, the numbers of loans and their value appear to be fudged somewhat.

For example, in a grid reporting data on residential loans, the number of applications received (328) is nowhere near the number of loans “committed” (1,222).  How could the number of loans possibly exceed the number of applications, Yamamoto Lau was asked in an email.

 

“After looking at it again,” she replied, “the chart could be confusing, even with the related footnotes.” The total amount given for all residential loans is $10.28 million, which, she added, “includes 22 loans that have been approved and committed with executed loan documents and solar systems in the process of being installed aggregating $683,615.”

So how can the larger figure be explained?

“It also includes $9.6 million in GEMS funds committed to install up to 1,200 solar hot water systems on Moloka`i rooftops, in which we anticipate receiving an estimated 1,200 applications,” Yamamoto Lau replied.

“We are not able to start accepting loan applications until we receive PUC approval of HGIA’s on-bill product as well as approval to finance residential energy efficiency,” Yamamoto Lau explained. Approval of on-bill repayment (the “on-bill product”) has not yet been sought, but HGIA says it is working on it. “On-bill repayment (OBR) is a critical tool to enable green infrastructure financing for the underserved (i.e., renters and low to moderate income households) to truly democratize green energy,” the report states. “The authority” – HGIA – “plans to submit a manual for its Green Energy Money $aver (GEM$) on-bill program during the current quarter.” The PUC also has yet to approve GEMS loans being used to finance energy efficiency measures (such as solar water heaters, the subject of the proposed Moloka`i financing).

When you get right down to brass tacks and set aside the projected “commitments,” in the two and a half years since HGIA started up shop, the number of residential loans closed on is 69, with a face value of $2,269,422. (Of those, as of June 31, three were in arrears.)

Commercial loans for photovoltaic systems number just six, but have a face value ($2,798,141) greater than that of the 69 residential loans.

Altogether, the GEMS funds released for residential and commercial loans as of June 30 come to around $5.07 million. HGIA administrative and program costs since the program’s inception are an additional $2.77 million (or 35 percent of the loan value).

But, according to the report, the really big loan that HGIA is getting ready to disburse is to the state Department of Education, which, thanks to Act 57 of the Legislature, is to receive $46.4 million in an interest-free loan to finance energy-efficiency measures at public schools in the Hawaiian Electric service area (O`ahu, Maui County, and Hawai`i island). According to the quarterly report, “the loan is currently being documented.”

Yamamoto Lau was asked how much interest will be foregone as a result of the DOE loan. So far, HGIA appears to be receiving around three-tenths of a percent interest (.345 percent, or $471,932) on the $136.7 million it has in the bank, so perhaps foregone interest on the DOE loan is not a consideration.

She replied that foregone interest was not an issue, “as the funds won’t be released in bulk.” Instead, “HGIA will be paying the DOE’s contractors directly for milestones achieved and/or work completed based on their contract with the DOE.”

— Patricia Tummons

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