from 108.7 solar rights megawatts laws and tax (“MW”) were incentives to utility pro- installed in 2012 – curement mechanisms mandat- enough to provide electricity ed by the Public Utilities Commission, to approximately 37,000 homes.4 such as the Net Energy Metering and Larger, utility scale solar PV facilities in Feed-in Tariff programs. Zoning and now range in size up to six MW.5 permitting laws governing larger utility And in its 2012 annual survey, the Solar scale solar PV projects have also played Energy Industries Association ranked an important role. by Douglas A. Codiga Hawaii the seventh-best state in the The rapid growth of solar energy is nation for solar energy, noting that supported by foundational Hawaii cli- Solar energy – especially photo- Hawaii gets a greater percentage of elec- mate and clean energy laws and policies. voltaic, or PV – has emerged as an tricity from solar than any other state.6 Following the launch of the Hawaii important source of in Under Hawaii law, “renewable Clean Energy Initiative (“HCEI”) in Hawaii, driven by its relative cost-effec- energy” is defined to include “energy January 2008, a landmark agreement tiveness, high levels of public accept- generated or produced using . . . [t]he (commonly referred to as the Energy ance, and supportive statutory and regu- sun[.]”7 This broad statutory definition Agreement) was signed by the Hawaiian latory law and policy. Although renew- encompasses different types of solar Electric Company, Inc. and the State of able energy production in Hawaii is pri- energy devices and technologies. Solar Hawaii. As well as including measures marily from wind, geothermal, and bio- water heating devices, for example, are to advance solar energy, the Energy mass, Hawaii has recently experienced commonplace rooftop fixtures that pro- Agreement established the goal of “70 rapid and unprecedented growth in solar duce hot water primarily for residential percent clean, renewable energy for elec- generation.1 Hawaii ranks first in the use. Concentrated , or CSP, tricity and transportation by 2030.”9 nation with regard to installed solar uses a parabolic trough to concentrate Consistent with this HCEI goal, Act water heaters and third in the nation for sunlight onto a tube filled with a working 155, signed into law in 2009, mandates cumulative installed solar PV capacity fluid to generate electricity.8 Many that by 2030 forty percent of net elec- per capita.2 Rooftop distributed solar Hawaii solar energy laws focus on solar tricity sales by electric utility companies PV has become one of the state’s leading PV, which uses silicon panels to convert in Hawaii shall be from renewable elec- industries, accounting for almost twenty- sunlight directly to electricity. These trical energy, and energy efficiency six percent of all construction expendi- laws, which have contributed to the measures shall cause the equivalent of a tures in 2012.3 Solar projects totaling recent growth of solar energy, range thirty percent reduction in energy use10 –

4 May 2013 HAWAII BAR JOURNAL thus requiring seventy percent clean The legal protection afforded by seek to enforce the law by litigating energy (i.e., renewable energy and ener- section 196-7 is available only to single- against their associations due to time, gy efficiency) by 2030 as a matter of law. family homes and townhouses, however, expense, and similar considerations. Accordingly, Part V of Chapter 269, and not to multi-story or high-rise con- Hawaii Revised Statutes, requires each dominiums or apartments with multiple Solar Devices on Project Common electric utility to establish Renewable units. Under Hawaii law, “townhouse” Elements Portfolio Standards (“RPS”)11 of ten per- means “a series of individual houses In addition to individual rooftops, cent of its net electricity sales by having architectural unity and a com- homeowners may place solar energy December 31, 2010; fifteen percent by mon wall between each unit, provided devices on a common element (e.g., December 31, 2015; twenty-five percent that each unit extends from the ground building rooftop, parking structures, or by 2020; and forty percent by 2030.12 to the roof.”17 Condominium and apart- grounds) or limited common element Solar energy may contribute not only to ment buildings may lack individual units (e.g., individual unit area) of the achievement of these RPS requirements, that extend from the ground to the roof. project upon obtaining consent of the but also to compliance with Hawaii’s In addition, the rights afforded by this association. The association must con- landmark climate change law, Act 234, law are available only to owners and not sent, however, if the unit owner agrees in which requires statewide reduction of renters of homes or townhouses. The writing to comply with the association’s greenhouse gas emissions to 1990 levels owner seeking to install the device must design specifications for the installation by the year 2020.13 ensure that it is in compliance with the of the device, engages a duly licensed The purpose of this article is to pro- association’s rules concerning solar ener- contractor to install the device, and pro- vide a brief overview of selected Hawaii gy devices and register the device with vides a certificate of insurance naming solar energy laws, with a focus on impor- the association within thirty days of the association as an additional insured tant recent developments and issues, or installation. on the homeowner’s insurance policy “hot topics.” A comprehensive discus- Consistent with the foregoing, sec- within fourteen days of the association’s sion of the many detailed aspects of the tion 196-7 also requires associations to approval of the solar device.20 The various laws and policies governing solar adopt rules by December 31, 2006 con- owner – and each successive owner – energy is beyond the scope of this article. cerning the placement of solar energy shall be responsible for costs arising from Instead, selected statutes and regulatory devices. The rules are to facilitate the damage to the device or to the common proceedings are surveyed in an effort to placement of solar energy devices, and elements, limited common elements, and provide an introductory overview and accordingly must not impose conditions adjacent units;21 shall maintain insurance examination of the current critical issues or restrictions that render the solar sys- covering these obligations and name the likely to shape the growth of solar ener- tem more than twenty-five percent less association as an additional insured;22 gy in Hawaii in the years to come. efficient or increase the cost of installa- and shall remove the solar energy device tion, maintenance, and removal of the if necessary to allow the repair, mainte- Right to Install Solar Energy solar system by more than fifteen per- nance, or replacement of the common Devices on Homes and cent. Nor may the association assess or elements or limited common elements.23 Townhouses charge any fees, or require an encum- If a material or labor roof warranty Under Hawaii law, the covenants, brance on title, related to installation of exists at the time the common element bylaws, and deed restrictions of an asso- the solar energy for the placement of or limited common element roof area, ciation14 of owners of single-family any solar energy device.18 the homeowner is required to obtain homes or townhouses generally cannot The failure of associations to timely written confirmation that installation of bar the installation of solar PV systems adopt such rules, in compliance with the the device will not void the roof warran- and solar water heaters. Section 196-7, statutory requirement of December 31, ty, and the owner must provide the asso- Hawaii Revised Statutes, “Placement of 2006, has been identified as a potential ciation with a copy of the confirma- solar energy devices” (“section 196-7”), barrier to the exercise of the solar rights tion.24 provides that “no person shall be pre- available under section 196-7. During Like homeowners, the association vented by any covenant, declaration, the 2013 session of Hawaii Legislature, itself may install solar energy devices in bylaws, restriction, deed, lease, term, for example, a bill was introduced to project common areas under Hawaii provision, condition, codicil, contract, or amend section 196-7 to require the law. Section 514A-13.4, Hawaii Revised similar binding agreement, however rejection of a condominium association’s Statutes, provides that, regardless of the worded, from installing a solar energy biennial registration application, and declaration of the residential develop- device on any single-family residential loss of its tax exempt status, upon the ment project, or its bylaws, an associa- dwelling or townhouse that the person association’s failure to timely submit the tion’s board of directors shall have the owns.”15 Any contrary lease or contract required rules.19 Reliance upon section authority to install or cause the installa- provision shall be void and unenforce- 196-7 may also be reduced to the extent tion of solar energy and wind energy able.16 association members are reluctant to devices on common elements of the

6 May 2013 HAWAII BAR JOURNAL project.25 The association may also lease or license the common elements for the installation of solar energy devices and wind energy devices on the common ele- ments of the project.26 The solar or wind energy device installed on a com- mon element of the project shall not be deemed to impair or diminish the inter- est of the owners in the common ele- ments, as long as the installation “does not directly affect any non-consenting unit owner.”27 The statute defines the term “directly affect” to mean the instal- lation of the device in a manner which Your Local Bond Specialist would “specially, personally, and providing License, Notary, adversely affect an individual apartment and Bail bonds in Hawaii owner in a manner not common to the for more than 30 years. 28 apartment owners as a whole.” See how easy the process Meeting and Beating Mainland Firms Prices can be. Download the Solar Tax Incentives • Same Day Service application from our web- State tax incentives have played a • Same Day Answers site and apply for a new critical role in the growth of renewable • Same Day Issue bond now. Just fill out energy in Hawaii – including solar ener- the form and fax! • Same Day Delivery gy – since the adoption of the first • Same Day Pick Up Hawaii energy tax credit in 1976.29 Pursuant to section 235-12.5, Hawaii James Waldron Lindblad, CBA | Bonding Agent Revised Statutes, “Renewable energy 808.522.1960 | toll free 800.701.2245 | www.808bond.com technologies; income tax credit” (“sec- 550 Halekauwila St., Suite 303, , Hawaii 96813 tion 235-12.5”), individual and corpo- rate taxpayers may claim a tax credit for eligible renewable energy systems installed and placed into service during the taxable year.30 The tax credit is avail- able to solar and wind energy systems.31 For solar energy systems, the tax credit may be claimed in the amount equal to Investment Advisers thirty-five percent of the actual cost of and Fiduciaries the system, or the amount of the appli- Providing institutional grade cable cap as determined under subsec- tion (b) of section 235-12.5 (“subsection investment management (b)”), whichever is less.32 Under subsec- with an EMPHASIS ON tion (b), the cap for residential solar PV RISK CONTROL is $5,000 per system and the cap for ••• HONOLULU OFFICE Using DISCIPLINED TAX AND commercial solar PV is $500,000 per 735 Bishop Street, Suite 414 33 COST EFFICIENT INVESTMENTS system. The cap for solar water heat- Honolulu, HI 96813 ing devices on single-family residential (808) 523-3393 ••• properties is $2,250 per system.34 CONSISTENT LONG-TERM In 2009, the Hawaii Legislature SAN FRANCISCO OFFICE performance established a refundable tax credit by 3 Lagoon Drive, Suite 150 ••• amending section 235-12.5 to provide Redwood Shores, CA 94065 Investment professionals each with that, for solar energy systems, a taxpayer (650) 610-9363 over 20 YEARS OF EXPERIENCE may elect to reduce the eligible credit amount by thirty percent and if this reduced amount exceeds the amount of income tax payment due from the tax- WWW.TLACAPITAL.COM

May 2013 HAWAII BAR JOURNAL 7 payer, the excess of the credit amount 12.5, with allegations that some solar for one additional system that does not over payments due shall be refunded to energy companies have promoted have the required minimum output the taxpayer.35 This refundable tax cred- improper multiple claims for solar arrays capacity.41 Governor Neil Abercrombie it is widely considered to be a major fac- using multiple inverters.39 Partly in has publicly expressed his support for the tor in the recent growth of the solar response to these allegations, in 2010 rules.42 The Sierra Club subsequently .36 and 2011 the Department of Taxation filed a lawsuit against the Department of The solar tax credits have spurred issued Tax Information Releases Taxation in the Circuit Court of the not only growth but also significant con- (“TIRs”) seeking to clarify the meaning First Circuit, State of Hawaii, seeking troversy involving the State of Hawaii of the term “system” in section 235-12.5 declaratory judgment on the validity of Department of Taxation, the Hawaii and the nature and amount of tax cred- the rules and injunctive relief preventing Legislature, and solar energy advocates.37 its that may properly be claimed.40 In implementation or enforcement of the For example, at the time of this writing, November 2012, following issuance of rules, based in part on the argument that legislation pending before the Hawaii the TIRs, the Department of Taxation the rules are contrary to section 235- Legislature would substantially revamp issued Temporary Administrative Rules 12.5 and Hawaii law and policy promot- the nature and amount of the section establishing new guidelines for calculat- ing increased use of solar and other 235-12.5 solar tax credit, based in part ing the tax credit under section 235- forms of renewable energy.43 The law- upon concerns expressed by legislators 12.5. Under these rules, which became suit remains pending at the time of this with regard to the cumulative financial effective on January 1, 2013, a taxpayer writing. impact of the tax credit on the State’s may claim a credit based upon a system Solar Power Purchase Agreements budget.38 Legislation adopted during the that has a capacity of at least five kilo- Hawaii’s solar energy tax incentives, current or future legislative sessions that watts (“kW”) for residential systems, and combined with historically low costs for substantially amends section 235-12.5 at least 1,000 kW for commercial sys- solar PV panels, high electricity prices, could alter the availability, effectiveness, tems. Multiple, full credits are available and other favorable conditions, have and impact of the solar tax credit. for multiple systems, provided that any spurred increased use of a variety of pri- As a legal matter, controversy has additional system for which the claim vate contractual arrangements common- focused on the interpretation of “sys- must have the required minimum output ly referred to as solar leases or power tem” as that term is used in section 235- capacity. The full credit is also available purchase agreements (“PPA”). As a pre-

For your real estate needs, trust a proven professional » President & Owner - Prudential Advantage Realty » Voted Hawaii’s Best Real Estate Firm for the past 5 years – Star Advertiser » Voted Best of Honolulu, Real Estate Firm, 2012 - Honolulu Magazine » Voted Best of the Best Realtor 2010, 2009 - Star Advertiser » #1 Agent for Prudential Real Estate in Hawaii for over a decade » One of top two residential realtors on ((HawaiiHawaii BBusinessusiness MMagazine)agazine) » Extensive experience with tax deferred 1031 exchanges » Former CPA - KPMG Peat Marwick, Honolulu offi ce » Former CPA - Pricewaterhouse/COOPERS (formerly known as Coopers and Lybrand), San Francisco offi ce

MYRON N. KIRIU (R) President, Owner (808) 864-9000 [email protected] www.MyronKiriu.com

Kahala Mall, Upper Level | 4211 Waialae Ave, Box 9050 | Honolulu, Hawaii 96816

8 May 2013 HAWAII BAR JOURNAL liminary matter, these types of PPAs for Because the seller is not a regulated elec- project and therefore often serves as a relatively small rooftop solar PV systems tric utility, regulatory approval by the key instrument of project finance. may be distinguished from negotiated Public Utilities Commission is not In addition, knowledge of regulato- bilateral power purchase agreements required.44 ry law governing the interconnection of (also referred to as PPAs) between large Solar PPAs and site control agree- PPA solar PV systems to electric grid, independent power producers and the ments require careful consideration of a and the procurement by the utility of local electric utility, which require host of potential legal issues. The term renewable energy, is helpful in evaluat- approval by the Public Utilities of a PPA, often tied to the anticipated ing solar PPA legal issues. Although the Commission. life of the solar PV system, is typically PPA seller’s electricity is delivered to the Broadly speaking, the purpose of a twenty years. Renewal options are com- host, the solar PV system will likely be PPA is to establish and allocate legal mon. The parties must negotiate key interconnected to the electric utility’s rights and obligations concerning the terms and conditions concerning the size system. As discussed below, tariff rules installation and operation of a solar PV of the system, the energy payment rate, adopted by order of the Public Utilities system that generates electricity for con- the commercial operation date, metering Commission likely govern the intercon- sumption at the premises. The solar PV and payment arrangements, the poten- nection requirements and procedures. system is installed, operated, and main- tial sale of the system to the host prior to The contractual arrangement between tained by the seller of electricity on the end of the term, operation and the solar PPA project and the electric premises owned or leased by the host maintenance provisions, termination utility may be through a standard inter- entity, typically an owners association, and default provisions, and the disposi- connection agreement or through a util- commercial facility, or landowner. The tion of the solar PV system and restora- ity procurement mechanism for solar PV, host agrees to purchase electricity from tion of the rooftop and premises at the such as the Net Energy Metering and the seller at a rate that is usually below end of the term. The accompanying site Feed-in Tariff programs. the rate offered by the local electric util- lease or license must be reviewed not ity. Often a PPA is accompanied by a only on its general terms but also for Net Energy Metering and Feed-in separate license or lease governing the consistency with the PPA. The executed Tariff Programs seller’s access to the premises to install PPA may play a central role in defining Part VI of Chapter 269, Hawaii and operate the solar PV system. the revenue and credit quality of the Revised Statutes, “Net Energy

May 2013 HAWAII BAR JOURNAL 9 Metering” (“NEM law”), filed an order initiating a became effective June 25, formal reexamination of 2001. Under the NEM law, Tier 1 and Tier 2 of the an “[e]ligible customer- FIT program (“FIT reex- generator” is a residential amination”).55 or commercial utility cus- Although the NEM tomer that owns and oper- and FIT programs have ates a solar, wind, biomass, been successfully imple- or hydroelectric facility mented thus far, important intended to offset all or a issues of law and policy part of the customer’s own remain. A critical issue for electrical requirements.45 both is program capacity, Net energy metering which may be determined (“NEM”) is defined as by the Public Utilities “measuring the difference Commission by reference to between the electricity sup- electric system reliability plied through the electric issues, as previously dis- grid and the electricity gen- cussed. Increased participa- erated by an eligible cus- tion in the NEM program tomer-generator and fed may be constrained by pro- back into the electric grid gram capacity limits estab- over a monthly billing peri- lished by the NEM law and od.” Essentially, customer- Commission orders. The generators are billed only pending FIT reexamination on the net kilowatt-hours of may also result in con- electricity they use (hence straints on increased partici- use of the term “net meter- pation based upon the pro- ing”). Net energy metering gram capacity. There are shall be accomplished using also energy payment rates “a single meter capable of issues. For the FIT pro- registering the flow of elec- gram, whether the energy trons in two directions” (a payment rate is sufficient to reason the NEM program is often features a set of standardized, published “move the market,” i.e., stimulate invest- referred to as involving the electric meter purchased power rates, including terms ment and development activity, remains “running backwards”).46 Under the and conditions, which the utility is a paramount issue in the success of the NEM law, the eligible customer-genera- required to pay to renewable energy program. Under the NEM law, cus- tor shall have a capacity of not more providers for electricity provided to the tomer-generators receive credit for 51 than fifty kW, although the Public grid. The program authorizes smaller excess generation at the electric utility’s Utilities Commission may increase that Tier 1 and Tier 2 projects and larger retail rate, which has prompted some amount.47 Tier 3 projects of up to five MW on scrutiny and concern. In the FIT pro- The Hawaii Feed-in Tariff (“FIT”) Oahu. Essentially a type of standard gram, a dispute over the application of program, which is among the first in the offer contract, feed-in tariffs provide cer- rules governing program access and pri- , is open to wind and tainty to renewable energy developers ority, or “queuing,” has resulted in a for- hydropower but is almost exclusively uti- and investors, thereby stimulating devel- mal legal appeal by a FIT project devel- lized by solar PV projects. On October opment and utility acquisition of solar, oper to the Hawaii Intermediate Court 24, 2008, four days after the Energy wind, and other types of renewable of Appeals.56 And solar projects seeking 52 Agreement was signed, the Public energy. It is widely acknowledged that to proceed under both of these utility Utilities Commission issued its order FIT programs have “stimulated more renewable energy procurement pro- opening the FIT docket.48 After a public renewable technology than any other grams must contend with technically 53 hearing in April 2009 that drew national policy mechanism” and a January 2012 complex issues concerning grid reliabili- media attention,49 the Commission status report indicates the Hawaii FIT ty, curtailment, and the interconnection issued its Decision and Order on program has thus far resulted in the of variable renewable generation to the September 25, 2009 establishing the installation of solar PV projects totaling existing electric systems operated by the 54 Hawaii FIT program.50 The program approximately 8 MW of capacity. On electric utilities. December 21, 2012, the Commission

10 May 2013 HAWAII BAR JOURNAL Tariff Rule 14H and Electric System Reliability Although Hawaii climate and clean and policy calls for Hawaii to transition from imported fossil fuels to renewables, the pace of this transition may be affected by the ability of existing electric systems to integrate variable gen- eration from solar, wind, and other renewable resources. Electric system reliability has been defined as the “elec- tricity service level or the degree of per- formance of the [utility] system defined by accepted standards and other public criteria.”57 Electric power supplied by solar and wind resources may be rela- Pressures of the law tively variable and unpredictable (due to changing natural conditions, such as overwhelming you? cloud cover or wind speeds) compared to electric power supplied by power plants. Electric system operators may generally view non-variable fossil We've been there. Stress can turn to depression. Stress and Depression can accelerate fuel power plants as better able to facili- self-medicating in about 15-18% of lawyers, and that can lead to disaster. We are here tate electric system reliability relative to as a safe place you can turn to. Let us help you back to a brighter future. The services variable resources such as solar energy. are free and strictly confidential, and communications are privileged. The basic issue of electric system Call 531-2880 • Neighbor Islands, call 800-273-8775 reliability and the integration of variable www.hawaiiaap.net • [email protected] solar energy generation is partly addressed through highly technical tariff rules governing the interconnection of solar facilities to the utility electric sys- tems. For example, the interconnection of relatively small solar PV systems to the distribution level circuits of the Hawaiian Electric Companies58 is gov- erned by the Tariff Rule No. 14H for each utility (“Rule 14H”). Rule 14H establishes the detailed technical requirements and procedures for inter- connecting solar PV and other renew- able energy facilities to the utilities’ elec- tric systems. Depending on the size of the solar PV system and the capacity of the particular distribution level circuit to accept additional variable generation while maintaining electric system relia- For over 20 years, we have achieved bility, a costly and time-consuming inter- record results in all upscale neighborhoods! connection requirements study (“IRS”) For a complimentary market analysis, call may be required. In many instances, the Patricia Case today at 526-CASE! requirement to conduct an IRS may ren- der the project infeasible. Rule 14H has been the focus of extensive regulatory proceedings since 2010.59 Most recently, potential modifi- cations to Rule 14H, and similar efforts

May 2013 HAWAII BAR JOURNAL 11 to streamline the interconnection of Although the curtailment issue may solar and other renewable generation to present challenges, Hawaii zoning law distribution circuits, were a major focus has been amended to facilitate the devel- of a Reliability Standards Working opment of utility scale solar PV projects Group (“RSWG”) convened by the on certain agricultural lands. Section “It’s important Public Utilities Commission in 2011.60 205-2, Hawaii Revised Statutes, estab- to make time for pro bono The recently-concluded RSWG process lishes four major land use districts in work in the involved over two dozen stakeholder par- which all lands in the State shall be community. ticipants and generated a 747-page final placed: urban, rural, agricultural, and For me, it’s report, which includes specific recom- conservation.63 Agricultural districts especially important mendations on a utility interconnection shall include “solar energy facilities,” to reach out and other related topics. These recom- provided that such facilities shall be and help mendations, which are based in part on allowed only on land with soil classified those who experience with the successful integra- by the Land Study Bureau’s detailed have no voice tion of increasing amounts of solar PV, land classification as overall (master) pro- under the law. are expected to be the subject of further ductivity rating class B, C, D, or E, and ” regulatory proceedings focused on mod- solar facilities placed within land with ~ Miriah Holden Alston, Hunt, Floyd & Ing ifying and improving Rule 14H to allow soil classified as overall productivity rat- increased interconnection of distributed ing class B or C shall not occupy more solar generation without affecting elec- than ten percent of the acreage of the Attorneys currently needed for help 61 with guardianships, simple wills, tric system reliability. parcel, or twenty acres of land, whichev- divorce and immigration. er is lesser.64 Similarly, section 205-4.5 Make a difference in our Utility Scale Solar Energy Projects identifies as a permissible use within the community and volunteer today. Larger, utility scale solar energy agricultural district solar energy facilities Contact: Cheryl P.K. Puna projects – mounted not on rooftops but that do not occupy “more than ten per- Pro Bono Project Coordinator on the ground in large, open areas and cent of the acreage of the parcel, or (808) 527-8005 • [email protected] www.legalaidhawaii.org interconnected to the utility’s electric twenty acres of land, whichever is lesser; system at the sub-transmission or trans- provided that this use shall not be per- mission level, rather than at the distribu- mitted on [Class A lands].”65 Although tion level – confront the same electric statutory authority to install utility scale DocumentDocument storastoragege system reliability challenges and con- solar PV projects on agricultural lands andand securitysecurity isis bestbest cerns. Utility scale solar PV projects sell has facilitated development efforts, leftleft to thethe experts.experts. electricity to the utility pursuant to a potential future access to Class A lands AccessAccess can hhelpelp protect your vvaluableaaluable bilateral power purchase agreement for these types of projects (and to Class B iinformationnformation wwithith sasafefe storage anandd secure approved by the Public Utilities and C lands in excess of the ten percent shshreddingredding anandd iinformationnformation ddestructionestruction Commission in a regulatory proceeding or twenty acres limitation) remains a seservices.rvices. WWe’ree’re the leadeleaderr iinn rrecordsecoords aandnd iinformationnformation management iinn HHawaiiawaii anandd (“PPA”). The PPA may contain provi- critical issue, especially to the extent rel- ththroughoutroughout tthehe UUnitednited SStates.tates. sions allowing the utility to “curtail,” or atively large amounts of land are not accept, electricity generated by the required for solar PV systems capable of CCallall your llocalocal Access ClieClientnt CaCarere RRepresentativeepresentative totodayday at 1 887777 FFilFileLine.eLine. utility scale project that the utility is meaningfully contributing toward the unable to utilize based upon technical achievement of future RPS require- reasons related to maintaining electric ments in conformance with Hawaii cli- system reliability. If the PPA’s curtail- mate and clean energy objectives. ment provisions do not establish a limit Similar to zoning matters, permit- or maximum amount of unpaid curtail- ting and environmental review for larger ment, developers of utility scale projects solar PV projects may be aided by may experience difficulty in obtaining Hawaii renewable energy laws. For financing due to this uncertainty. In example, in 2008 the Hawaii Legislature addition to IRS process concerns, tech- adopted Chapter 201N, Hawaii Revised InformationProtected.comInformationProtected.com | 1 877877 FFileLineileLine nical and policy solutions to addressing Statutes, “Renewable Energy Facility

Records and Information ManagementManagement the curtailment issue were a major focus Siting Process” (“Chapter 201N”). The TTeTemperatureemperature and Humidity Controlled MeMediaedia VVaultault Secure ShreddinShreddingg | Destruction of the RSWG process and are expected Legislature found that “coordinating the DDigitaligital Solutions | ScanninScanningg | WWeb-Hostedeb-Hosted StoraStoragege to be the subject of further regulatory process for required permits” is in the $FFHVVLVWKHRQO\1$,'FHUWL¿H$FFHVVLVWKHRQO\1$,'FHUWL¿HGG proceedings and action by the Public State’s interest in order to reduce (National(National Association forfor InformationInformation Destruction)Destruction) RSHUDWLRQLQ+DZDLLFHUWL¿HGIRRSHUDWLRQLQ+DZDLLFHUWL¿HGIRUUSODQWDQGPRELOHGHVWUXFWLRQSODQWDQGPRELOHGHVWUXFWLRQ Utilities Commission.62 Hawaii’s over-dependence on imported

12 May 2013 HAWAII BAR JOURNAL fossil fuels and meet Hawaii’s energy self-sufficiency goals.66 Under Chapter 201N, the Energy Resources Coordinator (“coordinator”)67 shall develop a permit plan application for- mat and procedure, receive the permit plan application from an applicant, and identify all state and county permits nec- essary for approval of the renewable energy facility.68 The coordinator shall further assist the permit plan application process by “coordinating the permitting process,” giving technical assistance, overseeing the creation of the permit plan, and facilitating “timely review and permitting” of the facility.69 The coordi- nator shall also coordinate public meet- ings and work with federal, state, and county agencies and the applicant to determine the terms and conditions of the permit plan and permits.70 The per- mit plan is to be designed to ensure that all permits identified in the plan are processed and either denied or approved no later than twelve months after the date the project permit plan is accept- ed.71 Chapter 201N also addresses the potentially contentious issue of environ- mental review of large solar PV and other renewable energy projects under Chapter 343, Hawaii Revised Statutes (“Chapter 343”). The coordinator may hold a pre-application conference with a prospective applicant “without regard to final acceptance of the final environ- mental impact statement,”72 and the per- mit plan shall include an agreement regarding the timeline and coordination for potential environmental impact state- ments (“EIS”) and permit concurrence, review, and issuance.73 Chapter 343 shall apply to any permit plan application for a renewable energy facility, however, and the coordinator shall not accept a permit plan application prior to acceptance of an EIS for the facility.74 An agency may review and commence processing appli- cations for permits prior to acceptance of a permit plan by the coordinator, pro- vided that action to grant or deny a per- mit shall not be taken until after final acceptance of an EIS.75 Chapter 201N also provides that leases and easements for renewable energy projects in agricul-

May 2013 HAWAII BAR JOURNAL 13 tural or conservation state land use dis- development and implementation of key 12 Haw. Rev. Stat. § 269-92(a). tricts are permitted even if the leased Hawaii laws governing both solar water 13 2007 Haw. Sess. Laws, Act 234 §1(a); H.B. land or easement area has not been sub- heating and solar PV. 226, 24th Leg. (Haw. 2007); Haw. Rev. Stat. § divided.76 Current and future legal challenges 342B-72(a). 14 Under Haw. Rev. Stat. §196-7, “Private enti- in solar energy law may be anticipated ty” means “any association of homeowners, Solar Water Heating Mandate insofar as the shift to non-fossil fuel ener- community association, condominium associa- Finally, although solar water heating gy entails far-reaching changes in the tion, cooperative, or any other non-governmen- has been an established and reliable production and use of new forms of tal entity with covenants, bylaws, and adminis- source of solar energy in Hawaii for energy. Such challenges, however, must trative provisions with which the homeowner’s decades – well before the current boom be continually assessed in light of the compliance is required.” 15 Haw. Rev. Stat. § 196-7(a). Similarly, it is in solar PV – a recent hot topic involves potential economic and environmental worth noting that bylaws, covenants, deed the variance provision under a Hawaii opportunities associated with clean ener- restrictions and similar legal agreements shall statute requiring new single family gy. The recent rapid increase in solar not, under Hawaii law, prevent the installation homes to be constructed with a solar energy illustrates the potential of solar of a clothesline on any single-family residential water heating device. Under section energy law and policy, properly under- dwelling or townhouse that a person owns, and any contrary lease or other contract provision 196-6.5, Hawaii Revised Statutes (“sec- stood and applied, to continue to play an shall be void and unenforceable. Haw. Rev. tion 196-6.5”), “Solar water heating sys- important role in shaping Hawaii’s tran- Stat. § 196-8.5. The term “clothesline” is tem required for new single-family resi- sition to a clean energy economy. defined as “a rope, cord, wire, or similar device dential construction,” after January 1, ______on which laundry is hung to dry.” An associa- 2010, no building permit shall be issued tion may, however, adopt rules that reasonably for a new single-family dwelling that 1 State of Hawaii Department of Economic restrict the placement and use of clotheslines provided that the restrictions do not prohibit the does not include a solar water heater sys- Development and , “Hawaii Energy Facts and Figures, January 2013” (“DBEDT use of clotheslines altogether. In addition, the tem, unless the coordinator approves a Facts and Figures”) at 2, 9, available at association may not assess any fees or charges 77 variance. Under the statute, a variance http://energy.hawaii.gov/wp-con- concerning placement of the clothesline. Id. 16 application shall only be accepted if sub- tent/uploads/2011/10/EnergyFactsFigures_Ja Haw. Rev. Stat. § 196-7(a). 17 mitted by an architect or mechanical n2013.pdf. Haw. Rev. Stat. §§ 514A-89 (emphasis 2 added); 514B-140; see also Haw. Rev. Stat. § engineer who attests that installation is Id. 3 502C-1 (Family Child Care Homes law defining impracticable due to poor solar resource, Id. at 9. 4 Solar Energy Industries Association, “Solar “Townhouse” to not include any apartments or cost-prohibitive based upon a life cycle Market Insight Report 2012 Year in Review” units located in a building of more than three cost-benefit, unnecessary because a solar (2012) (“SEIA Report”), available at stories). 18 PV or wind energy system is used for http://www.seia.org/research-resources/us- Haw. Rev. Stat. § 196-7(b). 19 th heating water, or a natural gas-powered solar-market-insight-2012-year-review. See H.B. 1406, 27 Leg. (Haw. 2013); see also 5 Statement of Richard C. Lim, Director, State of instantaneous water heater (that pro- DBEDT Facts and Figures at 9. 6 See SEIA Report, “State by State,” available Hawaii Department of , Economic vides hot water on demand, only as at http://www.seia.org/news/multimedia/ Development, and Tourism before the House 78 needed) is installed. shareable-graphics. Committee on Energy & Environmental In adopting this solar water heating 7 Haw. Rev. Stat. § 269-91. Protection (Feb. 12, 2013) (noting in support of mandate, the Hawaii Legislature found 8 Sopogy, Inc. (“Sopogy”), a Hawaii CSP com- H.B. 1406 that “[b]ased on the number of phone calls to our office, and our conversations that a conventional electric water tank pany, explains that CSP technology uses a para- with frustrated and even exasperated home or accounts for thirty to forty-five percent bolic trough to concentrate solar heat into ther- mal energy at an efficiency of approximately townhouse owners who wish to install solar of a home’s electric bill and that savings fifty percent and allows for storing, shifting, and devices, it appears that private entities have not from the installation of a solar water firming the energy generated. Sopogy offers adopted rules[.]”). 20 heating device could result in the system CSP technology only for commercial and non- Haw. Rev. Stat. § 196-7(c)(3). 21 being paid off in eight to ten years with- residential applications. See Sopogy, “FAQ,” Haw. Rev. Stat. § 196-7(d)(1). 22 Id. 79 available at http://sopogy.com/company/index. out a state tax incentive. Despite this, 23 php?id=16#10. Haw. Rev. Stat. § 196-7(d)(2). during the period of January 2010 when 24 9 Id. at 18, available at http://hawaii.gov/dbedt Haw. Rev. Stat. § 196-7(e). 25 the law took effect through February /info/energy/agreement/signed2008oct20. Haw. Rev. Stat. § 514A-13.4(c)(1). 26 2013 a total of 1,420 variances have pdf. Id. 27 been sought, virtually all of which have 10 2009 Haw. Sess. Laws, Act 155 §§ 3, 11; see Haw. Rev. Stat. § 514A-13.4(c)(2). 28 Id.; see also Haw. Rev. Stat. § 514B-140(c) been for the installation of gas-powered also Hawaii Powered: Hawaii Clean Energy Initiative (Energy efficiency measures imple- (same language). instantaneous water heaters.80 Prior 29 mented over the next two decades can save 1976 Haw. Sess. Laws, Act 189 (Haw. 1976) and potentially ongoing issues surround- 4,300 gigawatt hours of electricity, equivalent to (establishing state income tax credit for individ- ing the section 196-6.5 variance proce- approximately thirty percent of the demand ual and corporate taxpayers who install devices dures, and enforcement of the solar forecasted for 2030), available at http:// that “make[] use of solar energy for heating, water heating mandate in general, illus- www.hawaiicleanenergyinitia cooling, or reducing the use of other types of energy dependent on fossil fuel for its genera- trate the types of challenges confronting tive.org/wg_efficiency.html. 11 See Haw. Rev. Stat. ch. 269, Part V, et seq. tion.”).

14 May 2013 HAWAII BAR JOURNAL 30 Haw. Rev. Stat. § 235-12.5(a). 44 See Haw. Rev. Stat. § 269-1 (“Public utility” Electric Light Company, Inc., and 31 Haw. Rev. Stat. § 235-12.5(a)(1), (2); see also shall not include any person who “(i) Owns, Electric Company, Ltd. (collectively, “Hawaiian Haw. Rev. Stat. § 235-12.5(c) (definition of controls, operates, or manages a renewable Electric Companies”) 59 “Solar or wind energy system”). energy system that is located on a customer’s See Docket No. 2010-0015. 60 32 Haw. Rev. Stat. § 235-12.5(a)(1). property; and (ii) Provides, sells, or transmits the See Docket No. 2001-0206. 61 33 Haw. Rev. Stat. § 235-12.5(b)(2)(A), (C). power generated from that renewable energy See RSWG Final Report at Appendix 1, 34 Haw. Rev. Stat. § 235-12.5(b)(1)(A). system to an electric utility or to the customer Item No. 4b. 62 35 Haw. Rev. Stat. § 235-12.5(g); see also 2009 on whose property the renewable energy system See id. at Appendix 1, Item Nos. 3a, b. 63 Haw. Sess. Laws, Act 154 § 1, S.B. 464, 25th is located[.]”). Haw. Rev. Stat. § 205-2(a). 64 Leg. (Haw. 2009). 45 Haw. Rev. Stat. § 269-101. Haw. Rev. Stat. § 205-2(d)(6). 65 36 See, e.g., S. Cocke, “Report Says Solar Tax 46 Id. Haw. Rev. Stat. § 205-4.5. 66 Credits Have Been Good For the State,” Civil 47 Haw. Rev. Stat. § 269-101.5. In 2008, the 2008 Haw. Sess. Laws, Act 207 § 1. 67 Beat (Apr. 20, 2012) (citing report commissioned Commission increased the maximum capacity Haw. Rev. Stat. § 196-3. The Director of by Blue Planet Foundation indicating net fiscal limit on Oahu, Maui, and Hawaii to 100 kW. the Department of Business, Economic benefit to state from solar tax credits) available at See State of Hawaii Public Utilities Development and Tourism serves as the Energy http://www.civilbeat.com/articles/2012/04/2 Commission, Decision and Order No. 24089 Resources Coordinator. 68 0/15612-report-says-solar-tax-credits-have- filed Mar. 13, 2008 (Docket No. 2006-0084) at Haw. Rev. Stat. § 201N-3(1)-(3). Renewable been-good-for-the-state/. 16-17, available at http://dms.puc.hawaii. energy facility means a new facility with a 37 See, e.g., S. Cocke, “Solar Tax Controversy gov/dms/. Similarly, there is a statutory cap on capacity to produce at least 200 MW of renew- Expected To Heat Up 2013 Legislative the total power producing capacity of eligible able energy, provided that facilities with a Session,” Civil Beat (Jan. 11, 2013) (citing report customer-generators of 0.5 percent of the sys- capacity of 5-199 MW may apply to the coor- commissioned by Blue Planet Foundation indi- tem peak demand, although the Commission dinator for designation as a renewable energy cating net fiscal benefit to state from solar tax may increase this amount. Haw. Rev. Stat. § facility. Haw. Rev. Stat. § 201N-1; 2009 Haw. credits), available at http://www.civilbeat. 269-104. In 2008, the Commission increased Sess. Laws, Act 155 § 7 (Haw. 2009). 69 com/articles/2013/01/11/18069-solar-tax- this amount to one percent on Oahu and three Haw. Rev. Stat. § 201N-3(4). 70 controversy-expected-to-heat-up-2013-legisla- percent on Maui and Hawaii. See Hawaii Public Haw. Rev. Stat. § 201N-3(6)-(7). 71 tive-session/. Utilities Commission, Order Approving, in Haw. Rev. Stat. § 201N-4(f). 72 38 See, e.g., H.B. 623, 27th Leg. (Haw. 2013). Part, and Denying, in Part, Stipulations Filed on Haw. Rev. Stat. § 201N-4(b). 73 39 See, e.g., S. Cocke, “Hawaii Tax Department December 3, 2008, filed Dec. 26, 2008 (Docket Haw. Rev. Stat. § 201N-4(d)(5). 74 Poised to Crack Down on Solar Tax Credits,” No. 2006-0084) at 9, 13, available at Haw. Rev. Stat. § 201N-8(a), (b). 75 Civil Beat (Nov. 8, 2012) (New guidance to limit http://dms.puc.hawaii.gov/dms/. H.R.S. § 201N-8(b). 76 solar companies claiming multiple credits on 48 See Order Initiating Investigation (Docket 2009 Haw. Sess. Laws, Act 173 § 2, H.B. th solar arrays utilizing multiple inverters), available No. 2008-0273) filed Oct. 24, 2008, available at 589, 25 Leg. (Haw. 2009). 77 at http://www.civilbeat.com/articles/2012/ http://dms.puc.hawaii.gov/dms/. Haw. Rev. Stat. § 196-6.5(a). 78 11/08/17597-hawaii-tax-department-poised- 49 See, e.g., Mark Niesse, Hawaii gets to work on Haw. Rev. Stat. § 196-6.5(a)(1)-(4). 79 to-crack-down-on-solar-tax-credits/. energy independence, Associated Press, Apr. 18, 2008 Haw. Sess. Laws, Act 204 § 1. 80 th 40 See State of Hawaii Department of 2009, available at http://www.kpua.net/news. See S.B. 16, S.D. 2, 27 Leg. (Haw. 2013), Taxation, “Tax Information Release No. 2010- php?id=17699. Testimony of Blue Planet Foundation dated 02” (May 3, 2010), “Tax Information Release 50 Decision & Order filed Sept. 25, 2009 Mar. 19, 2013 at 1; see also M. Levine, No. 2010-03” (May 21, 2010); “Tax (Docket No. 2008-0273), available at “Mandatory Solar Hot Water for New Homes: Information Release No. 2010-10” (Oct. 13, http://dms.puc.hawaii.gov/dms/. Don’t Believe It,” Civil Beat (Nov. 11, 2010), 2010), available at http://www6.hawaii.gov/tax/ 51 Energy Agreement Summary of Key available at a3_1tir.htm. Agreements at 3, available at http://heco.com/ http://www.civilbeat.com/articles/2010/11/1 41 See State of Hawaii Department of vcmcontent/StaticFiles/pdf/HCEI_Summary- 1/6370-mandatory-solar-hot-water-for-new- Taxation, “Adoption of Temporary Rules of the Final.pdf. homes-dont-believe-it/; M. Levine, “State Department of Taxation Relating to the 52 Energy Agreement at 16. Allows Developers to Flout Solar Mandate,” Renewable Energy Technologies” (Nov. 5, 53 P. Gipe, Renewable Energy Policy Mechanisms Civil Beat (Nov. 12, 2010), available at 2012), available at http://www6.hawaii.gov/ (Feb. 17, 2006), available at http://www.wind- http://www.civilbeat.com/articles/2010/11/1 tax/har_temp/STANDARD_version_RETIT works.org/FeedLaws/RenewableEnergyPolicy 2/6389-dbedt-developers-burn-gas-flout-solar- C.pdf. MechanismsbyPaulGipe.pdf/. mandate/; and M. Levine, “Is Hawaii 42 See, e.g., Star Advertiser, “Citing spiraling 54 Hawaiian Electric Company, Inc., “FIT Expanding Solar Water Loophole?” Civil Beat costs Abercrombie slashes PV credits” (Nov. 9, 2012 Annual Status Report” filed Jan. 31, 2013 (Feb. 10, 2011), available at 2012), available at http://www.kitv.com/news/ (Docket No. 2008-0273), available at http://www.civilbeat.com/articles/2011/02/1 hawaii/Citing-spiraling-costs-Abercrombie- http://dms.puc.hawaii.gov/dms/. 0/8851-is-hawaii-expanding-solar-water- slashes-PV-credits/-/8905354/17353952/- 55 Order No. 30919 (Docket No. 2008-0273) heater-loophole/. /tjcj5pz/-/index.html. filed Dec. 21, 2012. 43 See Sierra Club v. State of Hawai’i 56 In the Matter of Public Utilities Comm’n., Docket Douglas A. Codiga practices energy and Department of Taxation, Civ. No. 12-1-3119 No. 2008-0273, No. CAAP-12-0000853. environmental law with the law firm of Schlack 57 (Plaintiff ’s Complaint filed Dec. 11, 2012) at 10 See Reliability Standards Working Group Ito LLLC and is a member of the firm’s (the Temporary Administrative Rules contra- Independent Facilitator’s Submittal, Final Climate and Sustainability Practice Group. vene the Legislature’s purpose in enacting sec- Report filed Mar. 25, 2013 (“RSWG Final tion 235-12.5 to “increase investment in and Report”), Appendix 1, Item No. 1-7, installation of residential and commercial “Reliability Standards Working Group Glossary renewable energy projects, including photo- of Terms” at 14. voltaic projects.”). 58 Hawaiian Electric Company, Inc., Hawaii

May 2013 HAWAII BAR JOURNAL 15