HECO Exhibit 10.12

ENERGY AGREEMENT AMONG THE STATE OF HAWAII, DIVISION OF CONSUMER

ADVOCACY OF THE DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS, AND

THE HAWAIIAN ELECTRIC COMPANIES

The signatories to this agreement are the Governor of the State of Hawaii; the
State Department of Business, Economic Development and Tourism; Hawaiian
Electric Company, Hawaii Electric Light Company, Maui Electric Company
(“Hawaiian Electric Companies”); and the Division of Consumer Advocacy of the
Department of Commerce and Consumer Affairs.

On behalf of the people of Hawaii, we believe that the future of Hawaii requires
that we move more decisively and irreversibly away from imported fossil fuel for
electricity and transportation and towards indigenously produced renewable
energy and an ethic of energy efficiency. The very future of our land, our
economy and our quality of life is at risk if we do not make this move and we do
so for the future of Hawaii and of the generations to come.

The islands of Hawaii have abundant natural resources, including wind, sunshine,
ocean and geothermal sources for electricity generation, and land for energy
crops that can be refined into biofuels to address electricity and
transportation needs. Economic and culturally sensitive use of natural resources
can achieve energy supply security and price stability for the people of Hawaii,
as well as significant environmental and economic opportunities and benefits.
Successfully developing Hawaii’s energy economy will make the State a global
model for achieving a sustainable, clean, flexible, and economically vibrant
energy future.

We commit to being open and truthful with our community about the investment
necessary to transition to a clean energy future, the importance of making it,
and the time it will take to be successful. We accept that the transition to
this clean energy future will require significant public and private investment
with impacts on Hawaii’s ratepayers and taxpayers and, we expect to achieve
long-term benefits that outweigh the costs of such investments.

As we move from central-station, oil-based firm power to a much more renewable
and distributed and intermittent powered system, we accept that the operating
risks of the Hawaiian Electric Companies will increase which may potentially
affect customers. Thus, we recognize the need to assure that Hawaii preserves a
stable electric grid to minimize disruption to service quality and reliability.
In addition, we recognize the need for a financially sound electric utility.
Both are vital components for our achievement of an independent renewable energy
future.

We commit to take steps to reduce the demand for electricity and increase the
efficiency of energy that we do use both to reduce the costs to the public and
to reduce the level of electrical generation. At the same time, we recognize
that a system of utility regulation will be needed to assure that Hawaii
preserves a stable electric grid and a financially sound electric utility as
vital components of our renewable energy future.

We will strive to assure that this process to achieve the HCEI goals and
objectives will be directed towards providing ratepayer benefits, including long
term price stability, and ultimately lower cost than would be incurred using
imported fossil fuels.

 

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We also commit to incorporate new metrics for measurement and oversight systems
that monitor our progress in reducing our use of imported fossil fuel, while
increasing our efficiency and our use of renewable energy to meet Hawaii’s
electrical energy demand.

We commit ourselves to a system of utility regulation that will transform our
major utility from a traditional sales-based company to an energy services
provider that retains its obligation to serve our public with reliable energy,
strives to source and integrate greener and lower cost generation, and moves us
to an energy independent future.

And finally, we commit to working together in good faith, openness and in the
spirit of cooperation and collaboration to achieve the objectives and goals set
forth in this agreement.

 

/s/ Linda Lingle

  

/s/ Constance H. Lau

Linda Lingle

   Constance H. Lau

Governor

   Chairman of the Board

State of Hawaii

   Hawaiian Electric Company, Inc.

 

/s/ Theodore E. Liu

  

/s/ Robert A. Alm

Theodore E. Liu

   Robert A. Alm

Director

   Executive Vice President

Department of Business Economic Development and Tourism

   Hawaiian Electric Company, Inc.

 

/s/ Catherine P. Awakuni

Catherine P. Awakuni

Executive Director

Division of Consumer Advocacy

Department of Commerce and Consumer Affairs

Witnessed By:

 

/s/ William Parks

  

/s/ Maurice H. Kaya

William Parks

   Maurice H. Kaya

U.S. Department of Energy

   Technical Director    Hawaii Renewable Energy Development Venture

 

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1 Wind Power for Hawaii

The Hawaiian Electric Companies are committed to integrating the maximum
attainable amount of wind energy on their systems.

Furthermore, the Hawaiian Electric Companies are committed to prudently
negotiate purchase power agreements and evaluate integration investment costs
for the benefit of the Hawaiian Electric Companies’ ratepayers.

To accelerate the addition of clean renewable energy resources for the residents
of Oahu, Hawaiian Electric is negotiating Power Purchase Agreements (“PPA”) with
several independent power producers (“IPP”) totaling up to approximately 135 MW
of renewable energy (collectively the “Grandfathered Projects”), which includes
a 30 MW wind farm located on the north shore of Oahu.

In addition to pursuing these Grandfathered Projects, Hawaiian Electric has also
issued a Request for Proposals for Renewable Energy Projects (“RE RFP”) seeking
to contract for an additional 100 MW of renewable energy for Oahu. The RE RFP is
part of a structured competitive procurement process established by the
Commission (“Competitive Bidding Framework”) with the intent to enable Hawaiian
Electric to obtain viable renewable energy generation at a competitive and
reasonable cost for the benefit of all ratepayers. Hawaiian Electric believes
that much of the developable wind energy resources located on Oahu (understood
to be in the range of approximately 100 MW) has the opportunity to be realized
in the near term as a direct result of the Grandfathered Projects and the RE RFP
activities.

Wind power is a commercially proven source of renewable energy today that, while
limited on Oahu, is abundant on the neighbor islands with combined resource
potential across the State thought to be in excess of 1,000 MW. To achieve
substantially greater use of wind power on Oahu where most of the electric power
in the State is consumed, it is necessary to transmit the wind power produced on
the other islands by undersea cable systems1 to Oahu. Several developers
proposing large-scale wind farm projects located on the islands of Lanai and
Molokai, ranging in size of up to roughly 400 MW each, have notified Hawaiian
Electric of their intent to submit a proposal in response to the RE RFP.

In order to facilitate a future in which the abundant, sustainable and
indigenous wind resources of our islands supply a significant portion of the
total energy demand on Oahu, the parties commit to the following:

 

1 Undersea cable systems are comprised of all facilities between the Oahu and
the neighbor islands’ AC transmission systems to transfer power between each
island’s grids.

 

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1. Hawaiian Electric commits to integrate, with the assistance of the State to
accelerate the commitment, up to 400 MW of wind power into the Oahu electrical
system that is produced by one or more wind farms located on either the island
of Lanai or Molokai and transmitted to Oahu via undersea cable systems (the “Big
Wind” projects). This accelerated process shall in no way limit the longer term
incorporation of additional neighbor island renewable energy projects should
those future projects and cost of integration prove feasible and prudent to
ratepayers.

2. Hawaiian Electric and the State commit to accelerate the addition of new
clean renewable energy resources on Oahu. To that end, the parties recognize
that the ongoing efforts related to the Grandfathered Projects and the Oahu RE
RFP currently in progress provide the best near-term opportunity to add up to
235 MW of new clean renewable energy resources located on Oahu. Hawaiian
Electric commits to continue negotiations for the purchase of renewable energy
from Grandfathered Projects and to efficiently complete the Oahu RE RFP. The
State commits to support, facilitate and help expedite these ongoing Oahu or
Oahu related activities and processes, including the successful development of
the resulting Oahu or Oahu related renewable energy projects.

3. To facilitate the early adoption of both the Oahu projects and one or more of
the neighbor island wind farm, Hawaiian Electric, with support from the State,
commits to work together with the developers of these Big Wind projects and the
Commission to bifurcate their project proposals from the ongoing Oahu RE RFP.
The bifurcated RFP process to evaluate and select the best Big Wind project or
projects, will be led by Hawaiian Electric, with support from the State.
Selection is contemplated to be conducted in conformance with the Competitive
Bidding Framework using data submitted by developers in September 2008. The
State will support Hawaiian Electric in the wind farm evaluation and selection
process.

4. Hawaiian Electric also agrees to provide $100,000 in funding to model the
Molokai grid and to make efficiency recommendations to the island residents. (A
similar program is already underway on Lanai through the Department of Energy.)

5. All necessary engineering, technical and financial studies and analyses to
identify Big Wind project integration and performance requirements, undersea
cable systems requirements, and Hawaiian Electric system modifications,
infrastructure additions and operating solutions (“Implementation Studies”) will
be conducted in a comprehensive but expedited manner. (See “Technology of
Inter-Island Renewables” section.)

6. The developer of the selected Big Wind project is responsible for all matters
related to the implementation of its wind farm facilities. These
responsibilities include: (a) securing all land rights, permits and approvals
(e.g. environmental, land use and construction) that are necessary for the
efficient and effective development of its wind farm; (b) all related
infrastructure and equipment that may be identified and required for the project
pursuant to the Implementation Studies, and (c) any requirements, such as energy
storage to meet performance standards, that may arise from a subsequent
interconnection requirements study (“IRS”) conducted by Hawaiian Electric, and
as embodied in a PPA between Hawaiian

 

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Electric and the developers. The costs of fulfilling the aforementioned
responsibilities shall be borne by the developer(s). Hawaiian Electric shall
provide for appropriate additional storage capacity investments, grid upgrade
additions, and grid operation management procedures to support the integration
of the project with the overall grid.

7. Understanding the complexity of large scale infrastructure siting and
investment in an Inter-Island Electric Cable, the State shall accept primary
responsibility and shall serve as lead, while coordinating with developers,
contractors, and/or Hawaiian Electric as the circumstances merit, on all matters
related to the siting and permitting of the undersea cable systems consistent
with the Implementation Studies. These responsibilities include but are not
limited to conducting or having contractors and advisors conduct the appropriate
engineering and design of the undersea cable systems, acquisition of all
necessary off-shore and on-shore land rights, permits and approvals (including
the Environmental Impact Statement), and construction, operation and maintenance
of the undersea cable systems. The undersea cable systems shall be considered
State owned infrastructure unless alternatives are discovered as part of the
Implementation Studies and agreed to by relevant affected Parties. The State can
also consider the option of bringing in a third-party independent transmission
company to fund and build the inter-island cables.

Hawaiian Electric may enter into an agreement as a contractor with the State for
the operation and maintenance of the undersea cable systems under such terms and
conditions as the parties decide. Should Hawaiian Electric enter into any such
operating and maintenance contract with the State, all reasonably incurred costs
and expenses of Hawaiian Electric arising thereunder shall be recovered through
the Clean Energy Infrastructure Surcharge (CEIS) mechanism.

8. The State shall first seek, with Hawaiian Electric’s and/or developer(s)
reasonable assistance, federal grant or loan assistance to pay for the undersea
cable systems. In the event that effort fails, the State will employ its best
effort to fund the undersea cable systems through a prudent combination of
taxpayer paid sources and ratepayer sources with acceptance that the cable
system finance may have an effect on Hawaiian Electric and that a financially
sound electric utility are vital components of our renewable energy future. In
the event Hawaiian Electric funds any part of the cost to develop the undersea
cable systems such that Hawaiian Electric has part ownership in the cable
systems, all reasonably incurred capital cost and expense of Hawaiian Electric
arising thereunder shall be recovered through the CEIS mechanism. However,
nothing in this paragraph shall be construed as creating an obligation on
Hawaiian Electric’s part to fund any part of the undersea cable systems costs.

9. The State and the selected wind farm developer shall work together, in
consultation with Hawaiian Electric and other appropriate advisors and
stakeholders as set forth in the conclusions of the Implementation Studies, to
interconnect the undersea cable systems to the developer’s wind farm facilities
located on Lanai or Molokai. Hawaiian Electric will be responsible for all
required utility system connections or interfaces on Lanai or Molokai, if any,
with the State’s undersea cable systems and/or the wind farm facilities. All
necessary

 

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Hawaiian Electric capital improvements will be proposed to the PUC for approval
including its recovery supported by the State and the wind farm developer, and
recovered, through the CEIS mechanism, until the next rate case, at which time
such costs will be reflected in the test year rate base.

10. Hawaiian Electric is responsible for funding, constructing, operating and
maintaining all land-based connections and infrastructure improvements to the
existing Hawaiian Electric system up to the interconnection point located at the
on-shore termination of the State owned undersea cable systems on Oahu. Hawaiian
Electric will consult with, and seek agreement with the State on the selected
route to the appropriate substation. The State will support, facilitate and
expedite all required land use, environmental and regulatory permits and
approvals associated with Hawaiian Electric’s land-based connections and
infrastructure improvements. In the event Hawaiian Electric is unable after
reasonable effort to secure the necessary permits and approvals or is delayed in
its completion of the required land-based connections and infrastructure on
Oahu, Hawaiian Electric is not responsible for the cost, expense, and any
purported lost opportunity of the Big Wind project developer and the State
related to their efforts toward the development of this renewable energy
undertaking. All necessary Hawaiian Electric capital improvements will be
proposed to the PUC, supported by the State and wind farm developer, and
recovered through the CEIS mechanism, until the next rate case, at which time
such costs will be reflected in the test year rate base.

11. In addition to the integration of Grandfathered Projects and possible
projects resulting from the RE RFP, and the commitment to integrate up to 400 MW
of wind power in Hawaiian Electric’s renewable energy commitments set forth in
this agreement, an assessment will be conducted as a part of the Implementation
Studies of the capability of the Oahu system to integrate additional wind energy
from the neighbor islands in future years. Upon completion of the assessment and
assuming it is possible, Hawaiian Electric agrees to integrate additional wind
energy following the successful integration and commercial operation of the
first large-scale wind farm. The Parties will review the process for the
implementation of additional renewable energy and storage project opportunities
from the neighbor islands and the Parties may agree to follow the same process
identified in this section for the first neighbor island wind farm(s) to ensure
that the proposal is in the best interest of the Parties and the ratepayers.

2 Renewable Energy Commitments

The parties are all committed to the rapid development of as much renewable
energy as possible. To that end, the parties are looking to the development of a
series of projects including, but not limited, to the listed projects.

Hawaiian Electric and the State commit to accelerate the addition of new clean
energy resources on Oahu. To that end, the Parties recognize that Hawaiian
Electric’s independent, ongoing efforts related to the Grandfathered Projects
and the Oahu RE RFP currently in

 

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progress may provide a reasonable near-term opportunity to add up to 235 MWs of
new clean energy resources located on Oahu. Hawaiian Electric commits to
continue independent negotiations for the purchase of renewable energy from the
Grandfathered Projects and to efficiently complete the Oahu RE RFP. Should these
projects prove feasible and demonstrate rate payer benefits as shown in
information made available to the State and in the State’s sole opinion, the
State commits to support, facilitate and help expedite these ongoing activities
and processes, including the successful development of the resulting renewable
energy projects.

It is understood that these projects must still be put before the Commission
through PPA and that other new projects may come along as well. Hawaiian
Electric will work to streamline PPA development for these projects in order to
meet the commitment timeline set forth in Exhibit B of this agreement.

It is also understood that Hawaiian Electric’s move to biofuels is not intended
to slow the implementation of these or other renewable energy projects.

It is understood that the Hawaiian Electric utilities will not add any new
utility owned biofuel central-station generating units without equivalent
retirements in terms of megawatthour energy generation of existing units. The
utilities will not be allowed any cost recovery for any new utility biofuel
generation units without the aforementioned equivalent retirement of existing
units.

It is also understood that the Hawaiian Electric utilities shall not themselves
add any new fossil-based generation over 2 MW beyond those already approved by
the Commission or under construction without equivalent megawatthour
retirements.

The parties do note that specific renewable energy projects may or may not
result in power purchase agreements for reasons outside the control of the
parties negotiating such agreements.

Hawaiian Electric will encourage and explore the development of the following
project proposals known today, with the goal of bringing the maximum number of
projects and renewable MW on-line as quickly as possible subject to Commission
approval, contract negotiations, and grid integration feasibility.

Hawaiian Electric Company, Inc.

 

  •  

RFP (Competitive Bid for Non-firm Renewable Energy) (100 MW)

 

  •  

NorthShore Wind (30 MW) as-available with batteries for smoothing

 

  •  

Honua (6MW) Waste-to-Energy

 

  •  

C&C (21 MW) Waste-to-Energy

 

  •  

Sea Solar (25 MW to 100 MW) Ocean Thermal

 

  •  

Lockheed Martin (10 MW) Ocean Thermal

 

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  •  

CIP CT-1 (110 MW) Biofuel Simple Cycle Gas Turbine

 

  •  

Airport DG (8 MW) Biofuel

 

  •  

DG at substations to Biofuel (30 MW)

 

  •  

Molokai or Lanai Wind (400 MW)

 

  •  

CIP CT-2 (100 MW) Biofuel

 

  •  

Military DG (100 MW) Mixed renewables

 

  •  

Waiau 3 and/or 4 Retirement (after CT-2 or Hawaiian Electric-Military DG on
line)

 

  •  

RFP (Competitive Bid for Renewable Energy) Additional and Replacement Power (MW
TBD)

Maui Electric Company, Ltd.

 

  •  

Shell Wind (21 MW) Wind

 

  •  

Lanai Solar (1.2 MW) Solar

 

  •  

Pulehu (6 MW) Biomass

 

  •  

Oceanlinx (2.7 MW) Wave

 

  •  

Landfill Gas (2 MW) Waste-to-Energy

 

  •  

KWPII (21 MW) Wind

 

  •  

HC&S extension Biomass

 

  •  

RFP (Competitive Bid for Firm Renewable Energy) Additional and Replacement Power
(MW TBD)

Hawaii Electric Light Company, Inc.

 

  •  

Up to 40 MW of generation resources with full ancillary services, economic
dispatch, energy payments only. Current possibilities are:

 

  •  

PGV Geothermal additional 8 MW

 

  •  

Hamakua Biomass (25 MW) or Hu Honua Biomass (22 MW)

 

  •  

Hi County Waste-to-Energy (4 MW)

 

  •  

Up to 5 MW of variable/intermittent generation resources with energy only
payments. Current possibilities are:

 

  •  

SOPOGY (0.5 MW) Solar

 

  •  

Na Makani (4.5 MW) Wind with pumped hydro for “firming” and “smoothing”

If the above happens, HELCO’s fossil fuel generation will be displaced;
depending upon how much of the above development occurs, the following may be
possible:

 

  •  

Reduction in energy purchases from Hamakua Energy Partners

 

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  •  

Reduction in energy production from HELCO fossil fuel units

 

  •  

Shipman (15 MW) Retired (after Biomass and PGV on line and bio-fueling not
feasible)

 

  •  

Diesel-11 (2 MW) Retired

 

  •  

Puna Steam (15 MW) converted to Biomass

 

  •  

RFP (Competitive Bid for Firm and/or As-Available Renewables – due 2023) (MW
TBD)

Energy storage, such as pumped storage hydro and battery energy storage as well
as transmission and distribution facilities are considered as utility
integrating technologies for generation resources. Energy storage and other
technologies which provide ancillary services may be utility-owned or may be
acquired with PPAs with appropriate prices, terms and conditions designed
specifically for grid integration and ancillary services.

3 The Technology of Inter-Island Renewables

The Parties are all committed to the integration of non-fossil fuel, renewable
energy, sourced first from the Renewables for Oahu Project(s). Over the long
term, integration of renewable energy from neighbor islands may also occur
should the results the Inter-Island Cable Study and additional Implementation
Studies show that the resulting energy generation, delivery and grid integration
costs provide true cost/benefit (in the face of imported oil and its associated
price and supply risks) to the State and to Hawaiian Electric Companies’
ratepayers.

In conjunction with the analyses to integrate the Renewables for Oahu
Project(s), the Parties agree to assess the potential of an expanded undersea
cable system to Maui County and to facilitate additional, near term, balanced,
renewable energy resources based on the study results, where such results and
additional potential projects are found to be cost effective and prudently
incorporated in the near term without interference with the Renewables for Oahu
Project(s). The Parties understand that the economies of scale and the timing of
capacity utilization of any proposed undersea cable configuration may materially
affect the overall benefit to ratepayers and will work to facilitate utilization
of the cable or renewable resources, while maintaining system reliability in
accordance with the rest of this section.

The parties agree to utilize an experienced technical resource, such as the
National Laboratories to independently validate and review the appropriateness
of the scope and depth of analyses envisioned for the Implementation Studies
below.

To successfully accomplish the objective of integrating renewable energy from
the neighboring islands, minimize curtailment of as-available energy, and
extract the most value of a Big Wind project, subject to confirmation in the
independent validation above, the parties agree to work together on a set of
Implementation Studies to identify:

 

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The technical requirements of and configuration for the inter-island undersea
cable systems to ensure their high availability in order to facilitate the
transfer of all available energy from the wind farm.

The modifications and additions needed for existing Oahu and neighbor island AC
transmission grids to reliably interconnect power from the inter-island
high-voltage DC cables and transmit the wind farm energy to Oahu’s distribution
system.

The energy storage or flexible generation (providing ancillary services and
other attributes such as load following, frequency response, regulation, quick
start, fast ramping, etc.) needed to offset the variable nature of the wind
energy and to minimize the curtailment of wind or other intermittent energy
projects.

The modifications needed on existing generating units (such as cycling
conversion, etc.) to offset the variable nature of the wind energy and to
minimize the “spilling” of wind.

The changes to operational practices and procedures needed to operate the island
grids and integrate their operations with the wind farm.

The parties agree that the Oahu Implementation Studies will be based upon
existing generation resources and transmission and distribution systems and will
take into account projects identified in the Renewable Energy Commitments
section above.

Using all available system, meteorological, and performance data of the island
systems, the parties agree to conduct these Implementation Studies in a
collaborative fashion to support a timely implementation of the neighbor island
wind farm, the undersea cable systems, and the on-island transmission,
generation, energy storage, and all other infrastructure necessary for the
effective integration of the wind farm energy.

The parties agree that technical and operating requirements (including the
design of the undersea cable systems, the modifications and additions to the
Oahu transmission system, the amount of energy storage or flexible generation
required, the kind of modifications needed to existing generating units, and the
changes to operational practices) determined in the Implementation Studies
should be based upon a robust infrastructure design that maintains reliability
levels consistent with industry practices, customer expectations, and
requirements of the PUC and strives to achieve a high fuel efficiency for the
system.

The parties agree that these Implementation Studies involve the technical
resources of the parties, and the technical assistance of leveraged resources
such as the U.S. Department of Energy and its National Laboratories, the Hawaii
Natural Energy Institute, and other appropriate technology advisors, both public
and private, such as General Electric and other industry experts.

The parties agree to base the design and development of a neighbor island wind
farm, the undersea cable systems, and the on-island transmission, generation,
energy storage, and all

 

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other infrastructure necessary for the effective integration of the wind farm,
on the results of these Implementation Studies.

The parties agree to assess the ability of the Oahu, Maui, and Big Island grids
to incorporate additional amounts of non-firm, variable renewable generation,
such as significant amounts of distributed PV generation and a subsequent
neighbor island wind farm.

The parties agree to analyze the expansion of the undersea cable system to the
Island of Hawaii and to assess the potential of the expanded undersea cable to
facilitate the development of additional renewable energy resources on the
Island of Hawaii.

The intent of this effort is to identify the ability to utilize wind, solar,
ocean, geothermal and other renewable resources to meet the electricity needs of
the ratepayers of the Hawaiian Electric Companies. It is understood that actual
build-out of the inter-island cables will probably happen in stages. Based on
current knowledge the installation of the shallow cables from Maui County to
Oahu are likely to happen first.

The parties agree that the cost of the Implementation Studies will be recovered
through the CEIP surcharge.

The parties also agree to examine the impact that interconnection may have on
revenue bond financing and to take appropriate follow up action. Appropriate
follow up actions could include seeking changes to IRS regulations or the
redemption of the revenue bonds and related capital structure costs.

4 The Solar Opportunity

Solar opportunities for Hawaii include solar water heating (SWH), photovoltaics
(PV), and concentrated solar power (CSP).

The parties believe that solar energy represents an immediate and substantial
renewable energy opportunity for Hawaii. In order to fully use that energy, the
parties commit to the following:

1. A measure to address issues encompassed in the Governor’s June 26, 2008 press
release on her signing of the mandatory solar roofing law enacted in 2008 will
be submitted to the 2008- 2009 Legislative session, and will be supported by all
parties.

2. The tax credits and rebates for the conversion of existing homes to solar
water heating will be continued. The Hawaiian Electric Companies may bid to
continue implementation of this program once responsibility for energy
efficiency programs is transferred to the third-party administrator.

3. The Hawaiian Electric Companies will propose a full “pay as you save” style
program under which the ratepayer (property owner or renter) requests solar
water heating, the utility

 

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provides the unit installed by a licensed solar dealer, and the unit is paid for
through a “shared savings” approach using the ratepayer’s bill. The utility may
outsource portions of the program administration. The utility will recover all
prudently incurred costs related to this program. By the end of 2008, the
Hawaiian Electric Companies will file an application with the PUC seeking
approval to implement the program, with a goal of no less than 2,500 annual
installations. Once the application is approved by the Commission, the Hawaiian
Electric Companies shall be ready to implement the program. (This program is in
addition to the ongoing solar water heating and pilot “pay as you save” programs
that are currently authorized by the PUC.)

4. The Hawaiian Electric Utilities are responsible for expeditiously integrating
customer-sited PV and CSP energy into the utility system via the Rule 14H tariff
as modified in May, 2008. In addition, the Hawaiian Electric Companies shall
incorporate the integration of PV systems in their Clean Energy Scenario
Planning (“CESP”).

5. The Hawaiian Electric Companies agree to address and mitigate the system
integration issues at the distribution and system level for PV technologies.

6. Support the installation of third-party and customer PV systems through
feed-in tariffs that offer known, stable pricing terms and standardized
interconnections (See Feed-in Tariff section).

7. Support customer energy payment options through modification of Hawaii’s Net
Metering option to include provisions for the sale of excess energy produced by
the customer’s net metered system on an annual basis and payment for such energy
at the feed-in tariff rate or at a somewhat lower fixed rate to fairly balance
the option risks available in all customer options. New net metered
installations shall be required to incorporate time-of-use metering equipment
and, when time-of-use rates are implemented on a full scale basis in Hawaii or
the applicable area, the net metered customer shall move to time of use net
metering and sale of excess energy. The Parties agree that net metering
installations benefit from system ancillary services, but that the long term
commodity risks accepted by installation owners and excess energy payments
contemplated herein, adequately compensate for the use of ancillary services
that are unique to small island systems.

8. In order to provide customers a third option, the Hawaiian Electric Companies
shall facilitate the development of photovoltaic (PV) energy by submitting an
application to the PUC for a “PV Host Program” by March 31, 2009 of this
agreement being signed. This PV Host program will consist of the following
elements:

a. Contracting to use a customer site, both commercial and residential, for the
installation of a PV system. The site owner may be a part owner of the system.
As consideration for providing a PV generation site, the site owner may receive
a site rental payment and/or use a portion of the PV energy generated at their
site.

b. The Hawaiian Electric Companies will competitively procure the installation
of the systems, which can be owned by a third party and/or the utility.

 

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c. In the case of third party-owned systems, the utility may purchase PV energy
at a standard rate. That rate shall not be linked to avoided cost and is
intended to provide long-term stable pricing. The initial rate shall be set
based on a competitive solicitation done by the utility before the submission of
the PV Host program application. The standard rate may be changed, subject to
PUC approval, based on changes in tax laws and rebates, changes in PV system
costs, and other developments in PV services.

d. The Hawaiian Electric Companies may purchase the PV system and add the system
cost to the utility’s rate base, as long as the cost of the system is at or
below the level established by the PUC.

e. The Hawaiian Electric Companies shall structure the program to acquire PV
energy as efficiently as possible, with priority given to sites, which
accommodate large amounts of PV. Attributes of these sites as well as relevant
information from known candidate sites will be identified in the program design
and in the PV Host program application that will be filed with the PUC.

f. Should federal legislation be altered so that the utilities may claim tax
credits, the value of such tax credits shall be passed through to ratepayers in
the form of lower rate based asset costs or other mechanism.

g. In these PV Host installations, the Hawaiian Electric Companies are
responsible for integrating the energy into the utility’s system.

h. Such PV Host systems can be targeted toward customers, such as the Department
of Education facilities and other State buildings and properties.

9. Once the program is approved by the Commission, the cost of acquiring PV
energy, including but not limited to site rental payments, site improvements,
interconnection, purchased energy, and PV Host program administration shall be
paid for by all ratepayers. The estimated program costs and cost recovery
mechanism will be provided in the program design and application that will be
filed for Commission approval.

10. Hawaiian Electric will review utility property such as Kahe Valley for use
as a PV and/or CSP site by March 31, 2009, and the results of such review will
be shared with the State and the Commission. Hawaiian Electric will also present
the process in by which development may be implemented at each site.

11. The Hawaiian Electric Companies agree to facilitate the development of CSP
through PPA.

12. The Hawaiian Electric Companies agree to address and mitigate the system
integration issues at the distribution and system level for PV and CSP
technologies through the Rule 14H tariff, as amended in May 2008.

13. All utility PV systems and projects shall be subject to the same circuit
limits as all non-utility customer sited DG resources.

 

13

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5 Biofueling

The majority of electric power generated in Hawaii is produced through the
burning of imported liquid fossil fuels. Significant activity is taking place
both in Hawaii and around the world to produce biofuels, which can be
substituted for liquid fossil fuels.

The use of sustainable, renewable biofuels in existing firm power units (utility
and non-utility) will provide substantial levels of renewable energy, reduce
greenhouse gas emissions, avoid the need to construct expensive replacement
generation, and allow for the integration of intermittent resources such as wind
and solar energy.

The demand created by the use of biofuels in Hawaiian Electric’s units will
provide a strong basis for investment in the local biofuel industry, which, in
turn, will bolster Hawaii’s agriculture sector and increase our energy
independence and security, and retain dollars in the State.

In order to facilitate the use of biofuels in Hawaii, the parties commit and
agree to the following:

1. The Hawaiian Electric utilities will affirm the technical feasibility of
biofuel (and/or blends of biofuels with fossil fuels) use in their generating
units via operational test burns beginning in 2009. Such testing will include:

 

a. Procurement, transport, and storage of biofuels.

 

b. Design, procurement, and installation of new equipment and instrumentation.

 

c. State Department of Health approval of test burns. No individual test burn
period shall be longer than three months, consistent with the Department of
Health’s administrative rules.

2. The State will support, facilitate and expedite all permitting and approvals
associated with the Hawaiian Electric utilities’ testing of biofuels in their
generating units.

3. The State will provide the Hawaiian Electric utilities with maximum air
permit flexibility during the test burns. If during testing, emissions approach
permitted emission limits, the Hawaiian Electric utilities will terminate the
tests. The Hawaiian Electric utilities may request temporary approval of higher
emission limits to allow completion of the test burn. The State will facilitate
and expedite the Department of Health’s approval of temporary emission limits.
In no case shall a violation of State or federal ambient air quality standards
be allowed to occur.

4. The Hawaiian Electric utilities will competitively procure sustainable
biofuels to be used for the tests, and request expedited PUC approval of the
test biofuel procurement contract(s) and the inclusion of the test biofuel,
sustainability audit, tracing, and certification costs, and transportation,
terminaling, throughput and related costs in the energy cost adjustment clause.
The parties agree on the Hawaiian Electric utilities’ need to conduct biofuel
tests and the appropriateness of including reasonable biofuel testing, audit,
tracing, certification,

 

14

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and transportation, terminaling, throughput and related costs in the energy cost
adjustment clause or other appropriate surcharge mechanism that will allow for
timely cost recovery. The parties agree to support utility recovery of all
reasonable non-fuel related biofuel testing expenses that are not included in
Hawaiian Electric’s existing base rates.

5. The results of the tests will be shared with the parties.

6. Subsequent to testing, implementation of long-term biofuel use in the
Hawaiian Electric utilities’ power generating units may require air permit
modifications and fuel infrastructure changes. The State and U.S. Department of
Energy (DOE) will facilitate and expedite the State’s Department of Health’s and
Federal Environmental Protection Agency’s approval of such permit modifications,
and advocate for maximum regulatory discretion including possible exemption from
New Source Review. Hawaiian Electric will be allowed full cost recovery for all
prudent and reasonable fuel infrastructure changes deemed necessary to support
the implementation of long-term biofuel use, upon commission review and
approval.

7. Assuming technical feasibility and the ability to modify permits are
confirmed, the Hawaiian Electric utilities will implement use of sustainable
biofuels (and/or blends of biofuels with fossil fuels) in their generating
units, subject to acceptable biofuel pricing and sufficient biofuel
availability. The Hawaiian Electric utilities will maintain flexibility in their
equipment and permits and will be allowed to use alternative fuels should
significant biofuel supply or price disruptions occur.

8. Hawaiian Electric will convert generating units using liquid fossil fuels to
using biofuels, to the extent reasonable and necessary to achieve RPS goals and
to facilitate integration of other forms of renewable energy.

9. The Hawaiian Electric utilities will procure sustainably-produced biofuels in
accordance with its NRDC environmental sourcing policy. The parties agree in
principle that paying a reasonable cost premium to ensure sustainability is
acceptable.

10. The Hawaiian Electric utilities will preferentially purchase biofuels that
are locally grown and produced in Hawaii. The parties agree in principle that
paying a reasonable cost premium for locally-produced biofuels is acceptable.

11. The State, via its State Biofuels Master Plan, will identify and implement
financial incentives and land use and employment policies to encourage the
development of a local biocrop and biofuel production industry.

12. The Hawaiian Electric utilities will consider and pursue options to actively
incent or partner in local biofuel development projects either as a regulated
utility or as an unregulated affiliate. The State agrees to support the
utilities’ involvement in these projects subject to a showing of avoidance of
conflicts of interest, and, if done as a regulated utility, reasonable ratepayer
benefits.

 

15

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13. The Hawaiian Electric utilities, as part of their ongoing research and
development activity will provide financial support for research and development
of locally-grown vegetable oils, research and development of algae and other
next generation feedstocks, and local feedstock production and processing
facilities. Currently, these activities are being conducted by the University of
Hawaii and the Hawaii Agricultural Research Center.

14. The parties will support continued federal tax support for biofuels and will
seek their extension to cover the full range of biofuel products including crude
palm oil (CPO).

15. If there is a disruption of supply or delivery of biofuels or any technical
or other similar biofuel related emergency situation, PUC approval must be
sought by the utility before it can substitute fossil fuels for biofuels in
operating new biofuel fired generating units beyond what is required for unit
testing or startups/shutdowns.

6 Avoided Energy Cost Contracts

The parties regard avoided energy cost based on fossil fuel prices for renewable
energy contracts as a vestige of the past. The Hawaiian Electric utilities will
make a request of all existing independent power producers in which PPA are
based on fossil fuel prices to renegotiate those contracts to delink their
energy payment rates from oil costs and provide ratepayers with stable,
long-term and predictably priced contracts. If such requests are not accepted,
as opportunities arise, the Hawaiian Electric utilities will negotiate new
contracts or extensions of existing contracts to delink their energy payment
rates from oil costs. See Exhibit B for a list of existing PPA prices based on
fossil fuel prices, and information on contract expiration dates.

All new renewable energy contracts are to be delinked from fossil fuel oil
costs.

The utility will determine what ancillary services are needed to integrate
proposed energy providers into the system and make appropriate investments to
ensure grid reliability and performance. The utility will pay appropriate value
for ancillary services provided by third parties.

7 Feed-in Tariffs

The parties agree that feed-in tariffs are beneficial for the development of
renewable energy, as they provide predictability and certainty with respect to
the future prices to be paid for renewable energy and how much of such energy
the utility will acquire. The parties agree that feed-in tariffs should be
designed to cover the renewable energy producer’s costs of energy production
plus some reasonable profit, and that the benefits to Hawaii from using a
feed-in tariff to accelerate renewable energy development (from lowering oil
imports, increasing energy security, and increasing both jobs and tax base for
the state), exceed the

 

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potential incremental rents paid to the renewable providers in the short term.
To that end, the parties agree to the following:

 

•  

The parties will respectfully request that by March, 2009, the Commission will
conclude an investigative proceeding to determine the best design for feed-in
tariffs that support the Hawaii Clean Energy Initiative, considering such
factors as categories of renewables, size or locational limits for projects
qualifying for the feed-in tariff, how to manage and identify project
development milestones relative to the queue of projects wishing to take the
feed-in tariff terms, what annual limits should apply to the amount of
renewables allowed to take the feed-in tariff terms, what factors to incorporate
into the prices set for feed-in tariff payments, and the terms, conditions, and
duration of the feed-in tariff that shall be offered to all qualifying renewable
projects, and the continuing role of the Competitive Bidding Framework;

 

•  

In addition, the parties will respectfully request that by July, 2009, the
Commission will adopt a set of feed-in tariffs and prices that implement the
conclusions of the feed-in tariff investigation;

 

•  

Utility PPA of renewable energy made using the Commission-approved feed-in
tariff shall be deemed to be prudent and their costs shall be approved for rate
recovery;

 

•  

Utility purchases of renewable energy under the feed-in tariff shall be counted
toward the utility’s Renewable Portfolio Standard requirements;

The parties agree in principle that 10% of the utility’s energy purchases under
feed-in tariff PPA will be included in the utility’s rate base through January
2015.

With the parties’ agreement to implement feed-in tariffs as a method for
accelerating the acquisition of renewable energy and Hawaiian Electric’s
implementation plan set forth in Exhibit B, towards the integration of the
renewable energy commitments, the achievement of the utility renewable energy
program goals, as well as the other commitments offered in this document as
identified and summarized in Exhibit A, the parties further agree to request
Commission suspension of the current intra-governmental wheeling docket (i.e.,
Docket No. 2007-0176) and the Schedule Q investigation (i.e., Docket
No. 2008-0069) for a period of 12 months, with a goal of having parties review
necessity of the docket.

8 Coal

The parties agree that new generators fueled, whole or in part, by coal are not
in the best interests of the people of Hawaii. Any attempts to add new coal
based generation in Hawaii will be opposed by the parties.

 

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9 Renewable Portfolio Standard (RPS)

The parties agree that a Renewable Portfolio Standard is a desirable way to
articulate and structure Hawaii’s electric utilities’ renewable energy
acquisition obligations. To that end, the parties agree to the following:

 

•  

Energy savings from such technologies as energy efficiency, demand response, and
renewable displacement shall not count toward the utilities’ RPS goals after
2014, but shall be fully counted with respect to achievement of the goals of the
Hawaii Clean Energy Initiative.

 

•  

In addition to a 10% RPS goal in 2010, a 15% RPS goal in 2015, and a 25% RPS
goal in 2020, Hawaii’s RPS goals shall be modified to require that 40% of the
Hawaiian Electric utilities’ total RPS must be provided from renewable sources
by 2030, and that through 2015 no more than 30% of the Hawaiian Electric
utilities’ total RPS may come from imported biofuels consumed in utility-owned
units.

 

•  

The Hawaiian Electric utilities will support the State and/or the PUC in
incorporating these changes in the HRS §269-92, or in the exercise of the PUC
authority. The parties understand that the PUC will impose penalties for
non-compliance with the RPS.

 

•  

Electricity generation from refuse-derived fuels shall count toward the RPS
because the energy produced by such generation is sustainable and avoids the
social costs of landfill disposal.

 

•  

To the degree that liquid or solid fuels are burned in a mixture of renewable or
sustainable and fossil fuels, only that portion which is renewable or
sustainable (measured on a per BTU input basis) shall count toward the
satisfaction of the RPS requirements.

 

•  

The Hawaiian Electric utilities may aggregate the renewable and sustainable
generation and purchases across all islands in their service territory on a
calendar year basis to meet their collective RPS requirements.

 

•  

All grid-connected renewable energy generation, both central-station and
distributed, shall count towards the RPS goal.

 

•  

The RPS goals will be reevaluated every five years beginning in 2013 to
determine whether they remain achievable, taking into account changes in
technology, the status of the projects contemplated in this agreement, and
necessary regulatory support. The reevaluation will also consider the status of
biofuels and its ability to contribute to the RPS, as well as increase in sales
for use in EV/PHEVs.

 

•  

If any renewable energy generated or purchased by the Utility on DOD
installations, and feeding power to the grid, cannot be considered in the
calculation of the utility contribution to the RPS, the RPS goals will be
adjusted accordingly.

10 Greening Transportation

For the Hawaii Clean Energy Initiative to reach its ambitious goal of 70 percent
clean, renewable energy for electricity and transportation by 2030, a
significant shift in the way we

 

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travel around Hawaii, and especially Oahu, is essential. While the State needs
to pursue a broad range of solutions for transportation, the parties agree to
the following:

Addressing transportation issues will require a combination of solutions
including:

1. Increased mass transit (more buses and some kind of fixed guide-way);

2. More fuel-efficient internal combustion vehicles;

3. Alternative fuels for vehicles;

4. Improved personal mobility (e.g., walking and bicycling); and

5. Behavioral changes (tele-commuting, car pool and van pool use, etc).

The most promising alternative fuel, by far, available today is electricity.
Electrification of transportation can offer consumers a lower-cost alternative
to gasoline. It also decreases greenhouse gas emissions from the transportation
sector dramatically, while only slightly increasing emissions from the power
sector.

A variety of electric vehicles are in various stages of use and development.

1. Present hybrids use only gasoline for fuel but run much of the time on
electricity generated by the vehicle;

2. Plug-in hybrids will charge from the grid and run most of the time on
electricity, seamlessly converting to small gasoline-powered internal combustion
engines only as the battery charge runs out; and

3. “Pure” electric vehicles will run exclusively on electricity, either from
direct recharging or a combination of recharging and battery swapping to extend
their range.

Whatever combination of technologies ultimately succeeds, moving from
gasoline-fired engines to electric engines makes sense now. Electric utilities
have significant idle capacity overnight that could be used to re-charge
vehicles (and swappable batteries) during off peak hours. Increasing off-peak
loads also can allow greater use of renewable energy during these off-peak
times.

The impact of pure EV/PHEVs upon the utility girds will be carefully studied,
and PHEV adoption strategies will be designed to complement and leverage the
utility grids and will note be pushed beyond the point where they become
potentially harmful or costly to the electric grid or uneconomic on a pure
BTU-in, transportation miles-out basis.

Therefore, it is agreed that the parties will make ‘greening’ of ground
transportation in Hawaii a priority.

Under this agreement, the State will:

 

•  

Encourage adoption of ‘gas-optional’ electric vehicles (hybrids, PHEVs, and EVs)
through a “tool box” of incentives, including but not limited to

 

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  •  

Tax credits and/or deductions;

 

  •  

Preferential parking and HOV lane use;

 

  •  

Waived or reduced registration/license fees;

 

  •  

Incentives/rebates for multi-family buildings to wire or re-wire for electric
vehicle charging;

 

  •  

Preferred insurance rates;

 

  •  

Incentives for rental car fleet conversion to “gas optional” vehicles; and

 

  •  

Support for:

Dealer offerings (preferred financing, discounts, rebates);

Utility offerings (preferred rates, rebates, new meters);

Employer support (stipends, vehicle-sharing, parking); and

Web-based information center.

 

•  

Assist utilities in making necessary changes (described below) to adapt to a
transportation electricity market, including installation of a smart grid and
potentially modifying the existing time-of-use rates to establish a rate that
encourages the recharging of batteries during the off peak periods, thereby
enabling the utility to reduce the amount of renewable energy that may be
curtailed during such periods, and supporting greenhouse gas measures, which
consider the overall decreased greenhouse gas impacts of converting from
gasoline-powered vehicles to cleaner gas-optional vehicles (i.e., not penalizing
the utility for possible increased electricity generation to help achieve
cleaner transportation objectives).

 

•  

For pure EVs, conduct a study to assess whether the additional charging stations
and other custom infrastructure needs dictate that one specific EV program
(e.g., A Better Place) must be chosen over others (this does not preclude also
supporting hybrid EVs and PHEVs).

 

•  

Work with all parties to develop charging stations in high traffic areas.

 

•  

Lead by example and help develop the ‘gas optional’ vehicle market by becoming
an early adopter of electric vehicles for its fleets.

Similarly, it is the responsibility of the electric utilities to:

 

•  

Lead by example and help develop the ‘gas optional’ vehicle market by becoming
an early adopter of electric vehicles for its fleets.

 

•  

Speed installation of Advanced Metering Infrastructure including the meters and
computerized control technology.

 

•  

Adopt time-of-use rates to encourage off-peak recharging and the computerized
technology to monitor and control such recharging.

 

•  

Encourage adoption of renewable energy as the primary source of recharging
power.

 

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11 Displacement of Fossil Fuel Energy and “Retirements”

As a key part of the transition of the Hawaiian Electric Companies’ systems to a
renewable energy future, the utilities will “retire” the older and less
efficient fossil-fired firm capacity generating units by removing such units
from normal daily operating service as expeditiously as possible. For purposes
of this agreement retire means (1) to decommission and shutdown the unit; or
(2) to place on “reserve standby status.”

The utility generating units affected, the relative timing of such change in
operating status, and the association of such operating status with the
implementation of other envisioned projects is described in the Renewable Energy
Commitments section of this agreement.

Re-permitting older generation will take years, and cannot be done fast enough
to meet an urgent need. At the same time, the ratepayers have made a substantial
investment in these units. Being able to bring units out of reserve standby
status is expected to save ratepayers millions of dollars, the utility years of
time to obtain approval to operate the unit and can avoid sustained outages
resulting from unforeseen events.

A generating unit placed on reserve standby status will retain its current
operating permits to provide for energy supply to customers as called for by the
utility based on system needs. These units will be placed in cold storage and
cannot be placed on the utilities daily commitment schedule except under
emergency circumstances. When the unit is brought out of standby status, the
utility shall notify the Commission, the Consumer Advocate, the Federal
Environmental Protection Agency (EPA), and the State Department of Health (DOH).
The utility’s capital, operations and maintenance expenses related to placing
and maintaining its units on standby status and to run the units under emergency
conditions shall be subject to recovery through the rate process.

The utility with support of the parties will meet with the EPA and DOH to ensure
that it is understood (1) that it is not intended that the reserve standby
status is a permanent shutdown; (2) that the unit remains on State or federal
emission inventories; (3) that the units will continue to be maintained;
(4) that the unit can be brought back on line within six to eight weeks; and
(5) that the unit’s status will be reexamined as part of the Clean Energy
Scenario Planning process and its annual updates.

12 Energy Efficiency

It is the goal of all parties to ensure that Hawaii achieves the maximum
possible levels of energy efficiency as it represents the most effective use of
resources possible, including conservation by not using resources at all. To
that end, the parties agree to the following:

 

•  

The parties will support the development of an Energy Efficiency Portfolio
Standard (EEPS) for the State of Hawaii. The Hawaiian Electric utilities will
support the State’s

 

21

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effort in incorporating such EEPS in State statute, and will use its best
efforts to achieve the energy efficiency goals established in the EEPS.

 

•  

By April 1, 2009, the Hawaiian Electric utilities will initiate a load research
program to obtain detailed energy usage information about Hawaii energy
customers’ electricity and gas appliance age and efficiency, energy use
patterns, building energy use and efficiency characteristics, so this
information can be used to develop energy efficiency and mass market renewables
program designs and for future energy planning efforts.

 

•  

Beginning on April 1, 2009, the utilities will lead, in collaboration with the
State and third-party administrator, new studies to determine the technical and
economic potential for a broad variety of energy efficiency, demand response,
and renewable substitution measures within Hawaii. The cost of such studies will
be recovered through an appropriate surcharge mechanism.

 

•  

The third party administrator will take over the administration of all energy
efficiency programs as ordered by the Commission. The parties believe that the
utilities should be allowed to apply for and will support the utilities
continued provision of energy efficiency programs to commercial and industrial
customers, upon the administrator’s and Commission’s review and approval, for a
three-year period while the third-party administrator gets established and
defines the overall program direction;

 

•  

The third-party administrator, utilities and stakeholders (such as the IRP
Advisory Group and C&I customers) will work together in a collaborative process
to design effective, high-impact energy efficiency and renewable substitution
programs that are expressed in five-year program plans.

 

•  

The State and utilities will work with the third-party administrator and
stakeholders to identify and deliver a set of energy efficiency measures that
are specifically targeted to benefit low income electric and gas users, and fund
delivery of those measures through the Public Benefits Fund.

 

•  

By June 2009, the Commission, State and utilities will identify no fewer than
six energy efficiency measures or sets of measures that can achieve high
penetration and high savings impact quickly and cost-effectively, and develop a
plan to begin delivering those measures to Hawaii electric customers beginning
no later than September 2009. These programs can be funded by eliminating other
efficiency programs that have been found to have less impact at higher cost, and
will be implemented by the third-party administrator.

 

•  

The parties also agree that Hawaiian Electric may apply to implement the
Residential New Construction (RNC) program, Residential Customer Energy
Awareness (RCEA) program and the Residential Solar Water Heating (RSWH) program
but that the State will not necessarily support their applications.

 

•  

The energy efficiency programs shall not provide incentives to encourage
customers to switch to other fossil fuels.

 

•  

The parties agree to support the enactment of an energy efficiency portfolio
standard at the 2009 session of the Legislature.

Upon approval of the programs by the Commission and the program responsibility
is transferred to the third-party administrator, the utilities and the
third-party administrator will

 

22

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have budget flexibility to use the resources available to achieve the stated
goals and energy use reduction targets and program goals within broad guidelines
that permit the pursuit of market opportunities, but preserve the ability of
customer segments to have equitable access to program participation.

13 Demand Response Programs

Demand Response programs, including load management programs, are a critical
component of the reduction of electrical energy use. These programs allow
specific customer loads to serve the interests of all ratepayers by allowing
those loads to be controlled for grid reliability and cost management. In order
to achieve the maximum potential of these programs, the parties agree to the
following:

1. Administration of demand response should remain with the utilities because of
the need to monitor electrical system status while deciding when and to what
degree to invoke the demand reductions available through demand response
programs.

2. The utilities should update direct load control programs to enable use of the
programs as an emergency grid management option. MECO and HELCO will propose the
implementation of new demand response programs and submit an application seeking
Commission approval of such programs by June 30, 2009. Hawaiian Electric will
determine the modifications deemed necessary to the existing direct load control
programs currently authorized by the Commission. A well-designed demand response
program is beneficial because the program enables the utility to maintain
reliability during grid emergencies and defer generation additions.

3. The utilities will also explore the use of demand response as a mechanism to
accommodate more renewable energy and to manage frequency fluctuations resulting
from intermittent renewable resources connected to the grid and provide a
recommendation for such use to the Commission by December 31, 2009, including a
request for Commission approval for implementation.

4. Third-party demand response or load curtailment aggregators have demonstrated
the ability to develop a variety of price-responsive event and responsive demand
response options. Hawaiian Electric will work with these firms to insure the
maximum use of this resource and propose an initial plan of action by June 30,
2009. In addition, Hawaiian Electric may conduct pilot projects with
aggregators, which will provide an opportunity to demonstrate the value of their
programs. Proposals seeking Commission approval for such pilot projects will be
submitted by December 31, 2009.

5. Demand response pilots are a low risk approach to test new concepts, and test
new communication technologies and hardware in island salt-spray environments
separated by mountain ranges, valleys and ridges. Demand response pilots can
also test software that will interface with existing customer information
systems and test customer response to

 

23

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demand response program designs and delivery. Thus, pilot programs may be an
appropriate avenue to implement demand response in Hawaii. The Hawaiian Electric
Companies will provide the Commission with an evaluation of the initial proposed
pilot projects together with a proposed implementation date by December 31,
2009.

6. The Hawaiian Electric utilities will explore enabling technologies, and if
appropriate, will add them to the system to make it easier for customers to
receive energy pricing or event information and change or manage their energy
use based on this new information. An assessment of such technologies will be
incorporated into the Hawaiian Electric Companies’ Clean Energy Scenario
Planning process.

7. The utilities will also allow demand response to provide a variety of
ancillary services and encourage those demand-side ancillary services if they
can be provided more precisely than supply-side resources. An assessment of the
benefits of using demand response to provide ancillary services will be
incorporated into the Hawaiian Electric Companies’ Clean Energy Scenario
Planning process.

8. Program costs for existing and any new demand response programs shall be
recovered through DSM surcharge.

14 Advanced Metering Infrastructure (AMI)

Advanced Metering Infrastructure is a critical component of a number of
important aspects of the Clean Energy Initiative. The parties believe that AMI
will help customers manage their energy use more effectively. To that end, the
parties agree on the following:

1. Hawaiian Electric will apply to the Commission by November 30, 2008, for
immediate approval to begin installing, on a first-come, first-served basis,
advanced meters for all customers that request them. The application will also
seek expedited approval to fully implement time-of-use rates on an interim basis
for the customers requesting the installation of advanced meters. Unless the
Commission identifies a compelling reason to do otherwise, all customers having
advanced meters will be given the utility time-of-use or dynamic rate options
and shall have to affirmatively opt out of the rate option.

2. The meters and associated costs will be paid for through the CEIS, until such
costs are embedded and recovered in the utilities’ base rates in future rate
cases.

3. By December 31, 2008, Hawaiian Electric will file a full application to
install advanced meters to remaining customers and the communication and meter
data management system, including the necessary software and appropriate pricing
programs. The PUC application will identify the desired goals, business
purposes, functionality and cost for advanced meters and the identification of a
meter data management system with associated costs to purchase and install that
will achieve the desired goals and purposes, including a

 

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schedule for acquisition and installation of remaining meters and the customers
to be served.

4. Upon Commission approval, AMI will be implemented as quickly as possible,
along with proposals for time-of-use rates and customer electricity pricing
information that facilitate substantive customer understanding and energy use
management.

5. Hawaiian Electric will minimize the financial impacts on low income and
disadvantaged customers who have limited options through a combination of tiered
rates and lifeline rates.

6. The Hawaiian Electric utilities working with external experts will submit to
the Commission an evaluation of the effectiveness of the utilities’ time-of-use
rates and shall determine whether any changes are needed to the energy
information communications and time-of-use rates to improve customers’ energy
responsiveness. The utilities will complete this evaluation by December 31, 2009
and will submit a second report 1 year after the full deployment of AMI.

7. Beginning January 1, 2009, the utility will submit an annual report to the
Commission on the number of customers currently served, number who opted out,
customer load response, impact of time-of-use rates on customer’s monthly bills
and feedback received from customers.

15 Pricing Principles and Programs

The pricing of electrical services can be used to motivate changes in customer
electrical usage and allow customers who choose to take advantage of specific
pricing programs to manage their electric bills. The parties agree that rates
must recover the basic costs of utility service and further agree to the
following:

The parties believe that rates should reflect the Bonbright principles, which
promote fairness in cost allocation, promote efficient resource use, are
practical to implement, easy to interpret, provide bill stability for the
customers, avoid undue discrimination between customers, and provide adequate
and stable revenues to Hawaiian Electric. Rates must reflect the basic cost of
service.

The parties also believe that participation in pricing programs should generally
be on an opt-out basis.

With those principles in mind, the parties agree that the Hawaiian Electric
utilities will continue to convert the residential rates to inclining block rate
structure to encourage energy conservation and efficient use of energy. The
utilities will complete this conversion of the residential rates as part of the
current rate cases before the Commission.

In the case of commercial and industrial customers, the current declining block
rate structure will be replaced with mandatory time-of-use for all C&I
customers. The utilities will

 

25

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complete the implementation of mandatory time-of-use rates to commercial and
industrial customers by class as AMI is implemented. Demand response options,
parallel with AMI deployment, will be offered to all C&I customers. Hawaiian
Electric will, on a continuing basis, evaluate the effectiveness of the program
and customer response.

16 Meeting the Military’s Needs

The parties understand that the military services have specific objectives to
improve energy efficiency in existing and new facilities, reduce dependence on
fossil fuels, and improve military installation energy security while containing
costs. The parties agree to support the military’s energy goals, and agree to
allow the utilities to meet the military energy service needs through
competitive or other service contracting methods as long as the utilities can
provide such services in a way that benefits rather than compromises other
ratepayers.

In order to meet the military service needs, various requests for proposals are
being prepared that will seek specific technologies and resources through
mechanisms such as Energy Savings Performance Contracts, Utility Energy Service
Contracts, and Enhanced Use Leasing. Possible services the Utility could provide
include Distributed or On Site Generation, Energy Efficiency Programs, Advanced
Metering, Smart Grid technology, Load Control programs and Renewable Energy
delivery.

Hawaiian Electric Company will actively participate in these processes and
believes that retaining military service customers is in the best interests of
all residents in the state of Hawaii. The State agrees to support the military
processes and decisions.

17 Seawater Air Conditioning (SWAC)

Seawater Air Conditioning is an established energy displacement technology and
is considered an important resource that all parties strongly support. Therefore
the parties agree to support rebates for individual buildings or customers that
choose SWAC and expedited SWAC permit review and approval by all State and
County agencies, starting with the downtown Honolulu SWAC project.

All parties agree to support:

 

1. Rebates that incent individual buildings to sign up for these projects;

 

2. Adoption by individual customers in the affected areas;

 

3. Expedited permit and approval review and action by all State and County
agencies.

The parties support the initial project, the downtown Honolulu Seawater Air
Conditioning (HSWAC) to be installed by 2010, with other projects to follow.

 

26

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18 Distributed Generation (DG) and Distributed Energy Storage (DES)

Distributed generation, including biofueled and fossil facilities, combined heat
and power, and small renewable technologies such as wind and photovoltaics, can
help replace central station generation and improve local grid operations and
reliability. Similarly, DES (such as batteries, ice storage systems, flywheels
and super-capacitors) can aid in firming intermittent renewables and provide
load shifting and peak-shaving capabilities. To support and accelerate the
adoption of DG and DES (termed broadly, distributed energy resources), the
parties agree to the following:

1. The Hawaiian Electric Companies will facilitate planning for distributed
energy resources through the Clean Energy Scenario Planning process and
Locational Value Maps, to identify areas where these resources have system
benefits and can be reasonably accommodated. The Locational Value Maps will be
completed and become publicly available by December 31, 2009.

2. The utilities will support non-utility DG and DES by improving the process
and procedure for interconnecting non-utility DG and DES to make it faster,
efficient, and more transparent. By June 30, 2009, the Hawaiian Electric
utilities will submit a review of the implementation of the Rule14H tariffs, as
amended in May, 2008.

3. All parties will support reconsideration of the Commission’s ban on
utility-owned DG where it is proven that utility ownership and dispatch clearly
benefits grid reliability and ratepayers’ interests, and the equipment is
competitively procured.

4. If Hawaiian Electric owns any DG, it will power those units using sustainable
biofuels or other renewable technologies and fuels.

5. The utilities may contract with third parties to aggregate fleets of DG or
standby generators for utility dispatch or under PPA, or may undertake such
aggregation itself if no third parties respond to a solicitation for such
services.

6. To the degree that transmission and distribution automation and other smart
grid technology investments are needed to facilitate distributed energy resource
utilization, those investments will be recovered through the Clean Energy
Infrastructure Surcharge and later placed in rate base in the next rate case
proceeding.

7. The Hawaiian Electric Companies will support DES either customer-owned or
utility-owned.

8. All parties will support Hawaiian Electric dispatchable standby generation
(DSG) units upon showing reasonable ratepayer benefits.

9. In order to accept higher levels of DG on the utility grid, significant
investment in smart grid technologies and changes in grid operations may be
needed. These investments, if

 

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demonstrated to be prudent and reasonable in cost, will be recovered through the
Clean Energy Infrastructure Surcharge or through the general rate case recovery
process.

19 Net Energy Metering (NEM)

The parties are in agreement that there should be no system-wide caps on net
energy metering at any of the Hawaiian Electric utilities. Instead, the parties
agree to the following:

 

•  

Distributed generation interconnection will be limited on a per-circuit basis,
where generation (including PV, micro wind, internal combustion engines, and net
metered generation) feeding into the circuit shall be limited to no more than
15% of peak circuit demand for all distribution-level circuits of 12kV or lower;

 

•  

New DG requests shall be processed and interconnected on a first-come,
first-served basis unless the Commission specifies some other method;

 

•  

For those circuits where interconnection requests (particularly for PV) approach
the 15% limit, the utility will perform and complete within 60-days after
receipt of an interconnection request, a circuit-specific analysis to determine
whether the limit can be increased. For non inverter-based DGs, the analysis to
determine whether the limit can be increased will be performed on a case-by-case
basis based on the specifics of the DG project(s) proposed;

 

•  

If the utility believes a specific DG installation poses a significant risk to
circuit reliability and safety or grid stability, it will notify the applicant,
the Consumer Advocate and the Commission, within 30 days from receipt of the
completion of a circuit analysis and the identification of the need to defer the
installation until further analysis can be conducted, and shall conduct that
analysis within no more than three months from the date of the application
request.

NEM currently provides an interim measure to encourage the installation of and
pay for renewable energy generated from customer-sited systems, generally PV
systems. The parties agree that NEM will be replaced with an appropriate feed-in
tariff and new net metered installations shall be required to incorporate
time-of-use metering equipment and, when time-of-use rates are implemented on a
full scale basis in Hawaii or the applicable area, the net metered customer
shall move to time of use net metering and sale of excess energy.

As part of the Clean Energy Scenario Planning (“CESP”) process, Locational Value
Maps (“LVM”) identified in the CESP process can trigger an engineering review by
the Hawaiian Electric Utilities to determine whether circuit limits can be
safely raised above the threshold for the specific circuits in the LVM and if
distribution circuit modifications can be made to increase the level of DG/NEM
within the LVM.

Current provisions relating to interconnection requirements will remain in
force.

 

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20 Lifeline Rates

The Hawaiian Electric Companies and Consumer Advocate agree to explore by April
2009, the possibility of establishing “lifeline rates”, which are designed to
provide a cap on rates for those who are unable to pay the full cost of
electricity and submit a proposal for Commission approval by April 2009.

21 The Gas Company

The Hawaiian Electric Companies and The Gas Company are energy providers to a
common group of customers and their collaboration can accelerate the success of
the HCEI. Hawaiian Electric welcomes The Gas Company’s interest in producing
renewable and sustainable fuels and will make every effort to use these
renewable fuels in its existing and future power plants.

22 Green Contracting

Because select ratepayers of the utilities have renewable energy obligations or
otherwise have a desire to obtain green attributes, and because renewable energy
in Hawaii, unlike on the mainland, is cost competitive with and often cheaper
than non renewable energy, the parties agree that green attributes should be
separated from green energy pricing, and that the price benefits of green energy
and the price stability to it provides, should be shared by all ratepayers.
However, the best method to achieve this goal requires further evaluation, so
the parties agree to help the Commission evaluate options for green contracting
and RECs by May 2009 and recommend a preferred path forward to the Commission.

23 Resource Attributes: The Loading Order

The parties agree that the maximum possible use must be made of energy
efficiency, demand response and renewable energy. The utilities shall apply this
loading order in the CESP process in determining the utilities’ resource plans
to supply the total system load.

24 Public Benefits Fund (“PBF”)

The parties agree that energy efficiency resources should be funded using a
Public Benefit Fund. The parties agree to the following:

 

  •  

Respectfully request that the Commission establish a PBF that is funded by
collecting 1% of each Hawaiian Electric utility’s total revenues in years one
and two; 1.5% in years three and four; and 2% thereafter. Once sufficient load
research and potential studies

 

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allow more precise identification of the cost-effective and achievable levels of
energy efficiency, the PBF collection amount will be based upon the desired
level of such investments;

 

  •  

The Commission may adjust the PBF funding levels on a year-to-year basis. The
monies shall be dedicated to the support of programs for the utility and
ratepayers from whom the funds were collected, except for studies which can
benefit the ratepayers of all of the Hawaiian Electric utilities;

 

  •  

Funds not spent in one year can be rolled over to another year and shall not be
available to meet any current or past obligation of the State;

 

  •  

PBF monies will be spent for energy efficiency programs measures, incentives,
market transformation, technical assistance, program administration, customer
education, potential studies, and measurement and evaluation, as expended by the
third-party administrator or program contractors, which may include the
utilities;

 

  •  

PBF monies for incentives and subsidy payments shall be allocated among
programs, measures, and customer groups at the discretion of the Commission with
input from the utility, third-party administrator, and other stakeholders;

 

  •  

Criteria for fund allocation shall include program cost-effectiveness,
likelihood of achieving high levels of energy savings and measure saturation,
and equity between customer classes. Allocations and incentive levels that are
set by the Commission should remain stable for a period necessary to allow for
program certainty and continuity for utility customer and service providers.
Adjustments based on market conditions and program evaluations are appropriate;

 

  •  

Program funding should remain stable long enough to create program certainty and
continuity for program providers and utility customers;

 

  •  

At least 10% of each Hawaiian Electric utility’s PBF shall be spent on programs
that serve low-income customers. The Commission has the discretion to adjust the
amount after review of relevant potential studies and input from the utility and
other stakeholders.

The Hawaiian Electric utilities shall encourage its customers whose bills are in
arrears to take advantage of available energy efficiency programs and provide
timely information and assistance on the programs available to them.

25 Investment in the Infrastructure

The parties agree in principle that maintaining the basic infrastructure of the
current electrical system is a critical foundation to all other aspects of the
Hawaii Clean Energy Initiative.

Furthermore, the parties also agree that it may be necessary to make additional
investments in transmission, distribution, and generation to facilitate and
integrate high levels of renewable energy production, and that those investments
will be determined through the Clean Energy Scenario Planning process. The
parties specifically reject deferred maintenance as an operating philosophy and
commit to supporting reasonable and prudent investment in the ongoing
maintenance and upgrade of the existing generation,

 

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transmission, and distribution systems, unless the CESP process determines
whether specific investments previously identified as being needed are
subsequently rendered unnecessary through the implementation of effective energy
efficiency, demand response, and distributed energy resources or non-utility
generation.

26 The Smart Grid

The parties agree in principle that a “smart grid” is a critical component of
Hawaii’s energy future. A smart grid builds upon existing utility generation,
transmission and distribution, using automation, communications, analytics and
controls to operate the grid more efficiently, reliably, and safely, and improve
the integration and use of intermittent renewables, demand-side and
decentralized resources. The parties agree to the following:

1. Increased levels of SCADA may be necessary for the Hawaiian Electric
Companies’ distribution system. Evaluating and prioritizing which circuits to
implement SCADA will include reviewing the levels of distributed generation by
circuit and in total on each utility system, as well as the levels of
monitoring, control systems, protection systems, and communications systems
required to maintain system stability. The level of SCADA additions to the
distribution system will be a significant consideration in evaluating system
changes and upgrades required to maintain system reliability as each utility
adds more renewable distributed generation to its system. Hawaiian Electric
utilities will complete this evaluation and review of its circuits by
December 31, 2009, and will submit a report of the results and recommendations
to the Commission by such date.

2. As wind and solar systems are added to the grid, particularly at the
distribution level, the utilities shall increase their real-time monitoring of
the transmission and distribution system capability that includes monitoring of
environmental factors such as wind speed, sunlight intensity and temperature.

3. In conjunction with an increased data collection capability as noted above,
it may be necessary to install and implement forecasting and monitoring systems
to better predict the wind and cloud patterns that affect variable renewable
generation.

4. There is a need to develop an increased capability to remotely and
automatically control transmission and distribution systems through the use of
remote switching devices, voltage regulations devices, protective relaying, and
individual distributed generation installations and individual loads.

5. In distribution circuits where DG penetration approaches levels which impact
the effectiveness of static protective relaying, it may be necessary to upgrade
the relay system to accommodate dynamic settings and higher penetration levels
of distributed generation.

6. It may be necessary to implement distribution automation; transmission and
distribution technologies and microgrids which address self-healing, resistance
to attacks, power quality,

 

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and accommodation of non-renewable generation. These technologies are intended
to open new markets and increase grid efficiency and should be implemented if
demonstrated to be cost effective.

7. Prudent and cost effective investment in smart grid technologies may be
recovered through the Clean Energy Infrastructure Program or the general rate
case process.

27 Transmission Planning

Transmission remains a key responsibility of the Hawaiian Electric Companies and
a critical element of a clean energy future. To that end, the parties agree to
the following:

1. The Hawaiian Electric Companies will perform and complete the planning
analysis required to evaluate several scenarios under the Clean Energy Scenario
Planning (CESP) process.

2. The CESP will identify new transmission projects for which the Hawaiian
Electric Companies will then pursue PUC approval to proceed with the
construction of the projects.

3. Transmission investments made to fulfill Clean Energy Scenario plans or
renewable energy development zone commitments will, to the greatest extent
possible, be supported by all parties including requests for the expeditious
processing of the applications filed with the PUC.

4. Integration of generation (renewable, variable, or firm) is a complex process
and the Hawaiian Electric Companies’ transmission and distribution planning
analyses are necessary for evaluating generation interconnection proposals. The
utilities will conduct the required evaluations within 6 months after receipt of
a bona fide generation interconnection request. The utility may request
additional information if it believes data received is incomplete or if
additional data is required to complete an IRS, but cannot use a series of
additional data requests to delay the process. The burden is on the utility to
demonstrate that the additional data requests are necessary, or else the time to
respond to data requests cannot be used to extend the 6-month deadline.

28 Decoupling from Sales

The transition to Hawaii’s clean energy future can be facilitated by modifying
utility ratemaking with a decoupling mechanism that fits the unique
characteristics of Hawaii’s service territory and cost structure, and removes
the barriers for the utilities to pursue aggressive demand-response and load
management programs, and customer-owned or third-party-owned renewable energy
systems, and gives the utilities an opportunity to achieve fair rates of return.
The parties agree in principle that it is appropriate to adopt a

 

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decoupling mechanism that closely tracks the mechanisms in place for several
California electric utilities, as follows:

1. The revenues of the utility will be fully decoupled from sales/revenues
beginning with the interim decision in the 2009 Hawaiian Electric Company Rate
Case (most likely in the summer of 2009).

The utility will use a revenue adjustment mechanism based on cost tracking
indices such as those used by the California regulators for their larger
utilities or its equivalent and not based on customer count. Such a decoupling
mechanism would, on an ongoing basis, provide revenue adjustments for the
differences between the amount determined in the last rate case and:

(a) The current cost of operating the utility that is deemed reasonable and
approved by the PUC;

(b) Return on and return of ongoing capital investment (excluding those projects
included in the Clean Energy Infrastructure Surcharge); and

(c) Any changes in State or federal tax rates.

Adjustments shall occur on a quarterly basis, semi-annual, or annual based or
the availability of the indices utilized. The adjustments will continue until
such time that they are incorporated in the utility’s base rates.

2. The parties agree that the decoupling mechanism that will be implemented will
be subject to review and approval by the PUC.

3. The utility will continue to use tracking mechanisms for Commission-approved
pension and other post-retirement benefits to ensure that the expenses are
evened out for the ratepayer and are not subject to sudden and dramatic swing.

4. The Commission may review the decoupling mechanism at any time if it
determines that the mechanism is not operating in the interests of the
ratepayers.

5. The utility or the Consumer Advocate may also file a request to review the
impact of the decoupling mechanism.

6. The Commission may unilaterally discontinue the decoupling mechanism if it
finds that the public interest requires such action.

7. In order to implement the decoupling mechanism, the parties agree that HELCO
and MECO will file for a 2009 test year rate case.

 

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29 Clean Energy Infrastructure Surcharge (CEIS)

The Clean Energy Infrastructure Surcharge is designed to expedite cost recovery
for infrastructure that supports greater use of renewable energy or grid
efficiency within the utility systems. The parties agree to support the
following:

1. The establishment of a CEIS to recover the reasonable costs of new
transmission and other infrastructure investment needed to facilitate new clean
energy investments by the utility or by IPPs. Subject to Commission approval,
the CEIS may also be used to recover costs that would normally be expensed in
the year incurred and may be used to accelerate cost recovery.

2. Capital costs eligible for recovery through the CEIS include the allowed
return on investment based on the rate of return from the last rate case, AFUDC
as appropriate, depreciation, applicable taxes, other costs as approved by the
Commission.

3. The reasonable costs of infrastructure investments will be eligible for cost
recovery through the CEIS if it can be demonstrated that the investments
facilitate greater grid efficiency as determined and approved by the Commission,
such as advanced meters and grid automation.

4. The reasonable costs of infrastructure investments that may be recovered
through the CEIS, as determined by the Commission, include transmission lines
built, in significant part, to facilitate renewable energy development,
inter-connection equipment, advanced metering infrastructure, battery storage,
and other equipment to facilitate increased use of renewable energy whether
utility or third-party owned.

5. The CEIS may also be used to recover costs stranded by clean energy
initiatives when approved by the Commission.

6. The CEIS is a mechanism to timely recover: (a) costs that would be expensed
in the year incurred; and (b) a return on and of the costs of specific capital
projects deemed necessary for the achievement of the HCEI objectives. The CEIS
is not a financing vehicle for the Hawaiian Electric Companies.

7. If the utility is conducting a very costly capital investment project and
receives Commission pre-approval for Construction Work in Progress (CWIP) rate
base treatment, the utility can use the CEIS to recover the return on the CWIP
asset. If the CWIP investment is given rate base treatment, it shall not earn
AFUDC.

8. The CEIS will be implemented as a separate surcharge.

9. Cost recovery under the CEIS will terminate when and to the extent that the
costs are incorporated in the utility’s base rates.

10. The CEIS surcharge will be reset on an annual basis to recover: (1) the
capital and other related costs (as noted in paragraph 2 above) incurred by the
utilities relating to the

 

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adoption and integration of the renewable energy resources commitments
identified in Exhibit A; (2) the change in the return on investment resulting
from the change in the unrecovered cost of the projects completed in years prior
to the immediately preceding year; and (3) the true up resulting from the
reconciliation of the estimated and actual collections for the immediately
preceding year. The new CEIS will take effect on March 1 of each year to allow
for consideration of the Commission approved: (1) final costs of capital
projects completed; (2) changes in the return on the net book value of the
capital asset at the end of the immediately preceding year; (3) the results of
the reconciliation to be performed by January 31 of each year of the estimated
and actual costs to be recovered in the CEIS for the preceding year; and (4) any
costs that should be expensed in the prior year, but are approved for recovery
in the CEIS. The Hawaiian Electric utilities, the State, and the Consumer
Advocate shall work in collaborative fashion in developing the implementation
procedure of the CEIS recovery mechanism, for submission for PUC approval by
November 30, 2008.

11. It is probable that it will be easier to achieve higher levels of renewable
energy generation on islands other than Oahu. Subject to Commission approval,
the CEIS may be used as a mechanism to have Oahu’s ratepayers pay for some of
the cost burden of new renewable energy developments on the MECO and HELCO
systems.

The utility has a Renewable Energy Infrastructure Program (REIP) pending at the
Commission. The parties have no objection to the use of this docket after
approval of the REIP to change the REIP to incorporate the CEIS mechanism
changes, provided public notice is given to the ratepayers of the Hawaiian
Electric Companies of the substitution changes and public hearings are held
regarding the change, consistent with the requirements of HRS § 269-12.

30 Energy Cost Adjustment Clause (ECAC)

The parties agree that the goal of utility resource purchases is to maximize the
purchase of renewable energy (and particularly locally-produced renewable
energy), to de-link the renewable energy contracts from oil prices, and to
stabilize, to the extent possible, ongoing fuel prices, in that order. To that
end, the parties agree to the following:

 

  •  

The Hawaiian Electric Companies may engage in limited hedging and forward
contracting for both energy and fuel using guidelines and practices to manage
both cost and risk, as approved by the Commission;

 

  •  

The Commission will periodically review and approve the prudence and
effectiveness of the Hawaiian Electric Companies’ utility’s fuel and energy
procurement practices to ensure that the requirements of the energy cost
adjustment clause are met. The Commission will examine whether there is
renewable energy which the utility did not purchase or whether alternate
purchase strategies were appropriately used or not used; and

 

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  •  

The Hawaiian Electric Companies will be allowed to pass through reasonably
incurred purchase power contract costs, including all capacity, O&M and other
non-energy payments approved by the Commission (including those acquired under
the feed-in tariff) through a separate surcharge.

 

  •  

If approved, these costs will be moved from base rates to the new surcharge.

 

  •  

The surcharge will be adjusted monthly and reconciled quarterly.

31 Preferred Stock / Hybrid Securities Offering

The utility must raise sufficient capital to fund the necessary infrastructure
required for the Hawaii Clean Energy Initiative, and will do so in part by
issuing a preferred stock/hybrid securities offering. Preferred stock/hybrid
securities represent a less expensive form of financing than equity, but does
not negatively impact the utility’s debt ratio as much as debt issuance would.
The parties agree to support a reasonable preferred stock/hybrid securities
offering proposal made by the Hawaiian Electric utilities to the Commission.

32 Clean Energy Scenario Planning (CESP)

To improve analysis and guidance for Hawaii’s clean energy future, the parties
agree to replace the current Integrated Resource Planning (IRP) process with a
new Clean Energy Scenario Planning (CESP) process. The parties agree to the
following:

 

  •  

The CESP process will provide high level guidance on long term (10-20 years)
direction and an Action Plan for near term initiatives (5 years), balancing how
the utility will meet its customers’ expected energy needs as modified by
planned energy efficiency, renewables substitution and demand response,
encouraging high levels of renewable and clean energy with distributed
resources, while protecting reliability at reasonable costs.

 

  •  

The CESP process will be conducted on an on-going basis with a new Clean Energy
Scenario Plan developed in three-year cycles. The CESP process will include
exploring alternative energy scenarios, risks and uncertainties, to develop a
base case and variations for a 20-year planning horizon.

 

  •  

Since clean energy actions and choices on one island may affect the entire
State, all Hawaiian Electric utilities shall conduct the CESP process in
parallel or as one CESP process for all three utilities, using common economic
and other assumptions and common scenarios for technology, economic, and
development paths and options, while maintaining the option to also develop
island-specific scenarios.

 

  •  

The Hawaiian Electric utilities shall conduct a comprehensive generation and
transmission analysis every three years to support the evaluation of several
planning scenarios to be considered in developing the new base case. In
addition, the Hawaiian Electric utilities shall provide Locational Value Maps
that will guide the identification of geographic areas of distribution system
growth for potential application of new energy

 

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efficiency, demand response, and distributed generation and storage within Clean
Energy Investment Zones.

 

  •  

The CESP process will incorporate an Advisory Committee and a public review
process;

Hawaiian Electric Company will complete and submit the Hawaiian Electric IRP-4
to the Public Utilities Commission by September 30, 2008. The Commission will
receive the Hawaiian Electric IRP-4 and will be requested to close the docket
and suspend HELCO’s and MECO’s IRP-4 dockets.

Hawaiian Electric Company shall request Commission approval to implement items
in the Action Plan that otherwise require approval through the IRP-4 process.

The parties will request that the Commission open a new docket to establish the
CESP process.

Pending the Decision and Order establishing the CESP process, each Hawaiian
Electric utility will continue to meet with its Advisory Committees and file
annual updates to its respective IRPs.

The parties agree that the specifics of the CESP Process, including the new CESP
objectives and framework, are subject to Commission review and approval. Some of
the specifics as may be proposed by the Hawaiian Electric utilities are
described below.

33 Clean Energy Scenario Plan

Each utility will conduct a comprehensive generation and transmission analysis
every three years to support the evaluation of several planning scenarios under
consideration in the development of the new base case and will provide
Locational Value Maps that will guide the identification of geographic areas of
distribution system growth for potential new energy efficiency (EE), distributed
response (DR), distributed generation (DG) and renewable substitution.

The Clean Energy Scenario Plan will take into consideration greenhouse gas
emissions, impacts to local natural resources and to the local economy. The
Clean Energy Scenario Plan will also identify, understand and characterize the
risks and uncertainties that can make a significant difference to the utilities’
resource selection. As Hawaii transitions to greater integration of new
renewable resources, it will increase the factors to manage the electric system,
and the level of reliability may at times be impacted.

The Clean Energy Scenario Plan should define a manageable scope for the process,
which includes annual updates (such as changes to the plan resulting from
changes in sales and peak forecasts, fuel prices forecasts, new or changes in
timing of generation resources, changes in penetration of DSM and other
demand-side resources, etc.) to keep plans “fresh” with updated assumptions and
to address/account for new issues (such as NEM limits). The

 

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Clean Energy Scenario Plan must comply with requirements of the Competitive
Bidding for New Generation Framework.

The Clean Energy Scenario Plan will include the following components subject to
Commission review and approval:

a. Scenarios - The Clean Energy Scenario Plan should focus on higher level
planning, such as scenario analyses and a preferred portfolio of energy
sources/types, rather than identifying specific details on individual resources
of the plan. These scenarios may feature different policy backdrops, such as
major increases or decreases in oil prices, policy changes such as federal or
international carbon regulation or the accelerated adoption of plug-in hybrid
electric vehicles, as well as different resource policies that the PUC can
influence or direct, such as higher levels of energy efficiency, demand
response, and renewable substitution (e.g., solar water heating and
seawater-cooled air conditioning). A reasonable number of Clean Energy Scenario
Plan scenarios should be developed in consultation with the State, PUC and
stakeholders to reflect a range of the possible energy-related policy choices
and risks facing the State, its utilities and citizens.

b. Base case and variations - The Clean Energy Scenario Plan should start with a
base case of the current IRP or Clean Energy Scenario Plan that incorporates
current and forecast loads, demographics, economic conditions, fuel availability
and prices, existing and planned resources (supply- and demand-side) and their
capital and operating costs, and more other relevant information.

c. Analysis - The Clean Energy Scenario Plan should be supported by quantitative
and qualitative tools to process data. Analysis tools may include production
simulation models, load flow models, and resource screening models that employ,
among several methods, probabilistic and Monte Carlo techniques to derive
probability based results.

The Clean Energy Scenario Plan will use production simulation and resource
screening models to identify the preferred energy contributions from various
resources, taking into account the differing renewable energy impact, emissions,
fossil fuel usage and cost into consideration. Existing contractual and forward
looking operational requirements and constraints on the mix of generation types
(such dispatch and curtailment requirements) will be factored into the analysis.

In addition to scenario analysis, technical analyses will need to be performed
to determine the extent to which renewable resources with certain types of
characteristics (e.g. intermittent, as-available resources, or fixed dispatch
resources) can be integrated into the system while maintaining a stable and
reliable electrical grid.

d. Scope - Clean Energy Scenario Plan includes an assessment of supply-side
additions, supply-side retirements (or purchase power contract terminations) and
demand-side resources as well as transmission requirements. Clean Energy
Scenario Plan excludes an analysis of the distribution system, but should be
coordinated with distribution planning to reflect the value and influence of
distributed resources (energy efficiency, demand response,

 

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renewable substitution and distributed generation) and to identify technical or
operational issues that may arise if customer resources (especially
customer-side distributed generation) develops into a high percentage of circuit
or system demand.

e. CESP process Advisory Committee - At the start of the CESP process, the
utility should form an advisory committee composed of key stakeholders
(including the third-party energy efficiency program administrator),
policymakers and customers to help the utility shape the scenarios and business
cases, resource options, analysis, interpretation and public review processes.

f. Renewable Energy Zones (REZ) - REZ identification will be performed in
coordination with the utility CESP process. The utility may request input from
consultants and/or national agencies, such as NREL, who understand the potential
areas of renewable energy development. With the support of these consultants,
existing transmission facilities could be overlaid onto Geographic Information
System (GIS) maps with the identified renewable resource locations.

g. System analysis - The utility should conduct a thorough, load flow
transmission system analysis building on the base case assumptions and forecasts
(including any known and measurable changes), evaluating grid conditions and
flows for no less than a three-year period. That analysis, informed by relevant
economic, load, and demand-side resource cases and scenarios, should be the
basis for utility planning. The Clean Energy Scenario Plan would evaluate system
level distributed generation and demand-side management (DSM) impact, taking
into account the aggregate system impact to load and load flows on the
transmission system to determine transmission and generation system benefits.
Localized impacts to system loads will be taken into account in the transmission
analysis as they are realized during the development of the base case model.

h. The CESP process identifies fossil needs - The CESP process will identify if
new fossil fueled units are needed. These should be justified primarily by the
need to balance and integrate variable renewable energy generation sources for
overall grid reliability.

i. Locational Value Map - The utility will identify “geographic areas of
distribution system growth” within the next 3-5 years where distributed
resources and energy efficiency could be beneficial within the existing
transmission and distribution system limits. The utility would identify
“geographic areas” rather than individual circuits (i.e., today for Oahu, could
identify the West side from Ocean Pointe to Ko ‘Olina; for the Big Island,
various areas in West Hawaii and North Hawaii; for Maui, areas of Kihei and
Lahaina) to maximize benefits and incorporate back up system needs. The
information from the Locational Value Maps would be provided to parties such as
the PBF Administrator so that EE DSM can be focused into geographic areas that
would most benefit from energy efficiency. Determining value or price in the
CESP process will be difficult because the potential to avoid distribution would
depend on how much EE was being installed, the amount and type of renewable
distributed generation being installed, and the planned operations of the DG
resources.

 

39

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j. Clean Energy Investment Zones - The utility should use the Locational Value
Map to identify geographic areas where there is a high value to incremental
investment in distributed generation, demand response, energy efficiency, or
CHP. Such areas will be clearly delineated and termed “Clean Energy Investment
Zones.” The utility will publicize the existence of these zones, focus efforts
to sign up customers, and evaluate the need for an RFP for firm renewable
distributed generation in the Clean Energy Investment Zones areas after
considering factors such as the ability to meet renewable goals, cost
effectiveness of renewable firm distributed generation, lack of proposals for
renewable firm generation in the Clean Energy Zones or difficulty in attaining
distribution assets within the needed time-frame. The utility will develop a
streamlined procedure to help customers, third-party aggregators, and energy
service companies contract with the utility to bring new clean energy resources
into service in these Clean Energy Investment Zones. All of this information
should be publicized in conjunction with the utility’s educational efforts
following completion of the Clean Energy Scenario Plan.

k. Cost - The utility should purchase renewable energy at prices that are
increasingly de-linked from oil prices. Avoided costs may be determined from the
costs the utility would incur if it installed a renewable resource.

l. No-regrets resources - Upon completion of the Clean Energy Scenario Plan
analyses, the utility should look for common themes, assets and strategies that
demonstrate robust value to balance costs and risks across many of the scenarios
and cases examined. These are likely to be “no-regrets” resources and strategies
that will give the utility and State the greatest value and flexibility across a
wide range of potential futures and uncertainties.

m. PUC Application for Transmission Assets - From the CESP process new
transmission assets that require PUC approval will be identified. Hawaiian
Electric will typically initiate more detailed studies in order to evaluate the
appropriate asset to install. The detailed studies will be incorporated into the
application for the new transmission asset that Hawaiian Electric submits for
PUC approval. Transmission investments made to fulfill Commission-approved Clean
Energy Scenario Plans or renewable energy development zone commitments shall
require PUC approval pursuant to the requirements of the Commission’s
administrative rules. Applications for approval submitted by the utility should
receive expedited handling and the Hawaiian Electric Companies shall demonstrate
the necessity of the project in application filed with the PUC. Upon Commission
approval, the project costs may be recovered through either the CEIS or through
a general rate case proceeding.

n. Public review – For the public review process of the Clean Energy Scenario
Plan the Hawaiian Electric Companies shall provide information to policymakers,
active stakeholders and the general public about future resource needs,
opportunities and costs. The utility should seek feedback from citizens,
consumers and policymakers in the State to assure that the Clean Energy Scenario
Plan is reflecting the public interest. The process of review should be long
enough to communicate effectively the information in the Clean Energy

 

40

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Scenario Plan to the public audience, and to receive effectively public
responses that can be integrated into subsequent planning work.

o. Regulatory review of the Clean Energy Scenario Plan - Regulators should
review and evaluate the plan to see that it can accomplish its purposes and that
it provides the strategic guidance for future utility planning decisions. This
approval should elevate the status of the preferred resources identified in the
Clean Energy Scenario Plan Action Plan to give them a presumption of need in any
subsequent siting proceeding.

p. Timing of the CESP process - The utility will submit the new Clean Energy
Scenario Plan to the Commission every three years, after a public review
process. It is suggested that there should be an expedited time period for the
Commission to complete its review and issue an order approving or denying the
plan within six (6) months. If the Commission rejects all or parts of the CESP,
there should be an explanation for non-approval and the implications of that
non-approval on the utility’s asset investment and strategic choices for the
upcoming three-year period. In order to continually reassess the CESP plan on a
regular and timely basis, it is suggested that if the PUC has not issued a
decision within a defined period, the plan is automatically deemed “approved.”
The utility can continue public education about the Plan while it is under
review at the Commission.

34 Federal Law and Rules

The energy picture in Hawaii is very different from the energy picture in other
states. There are, however, certain Federal laws, which can either assist or
hamper the Clean Energy Initiative.

The parties agree to support the following:

PURPA

 

  •  

Exempt Hawaii from PURPA

 

  •  

Adding an exemption that would cover Hawaii so that the utilities would be
authorized to consider independent power producer (IPP) proposals under the
State’s Competitive Bidding Framework when capacity or energy is needed rather
than being compelled to consider purchase power proposals from qualifying IPPs
as and when proposed, or to purchase power subject to all the terms and
conditions in PURPA. RENEWABLES

 

  •  

Extend expiration of Biofuels Blender’s Tax Credit.

 

  •  

This tax credit will expire on December 31, 2008, before Hawaiian Electric’s CIP
CT-1 is in service or MECO potentially purchases any biodiesel for its Maalaea
units. The tax credit should reduce biodiesel costs for the utilities, and,
thus, their ratepayers. The tax credit should also extend to all biofuels.

 

  •  

Expand PTC for Electric Generation from Biofuels

 

41

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  •  

This credit is available for electric generation from biofuels, but only for
units placed in service after 1992 and before 2006. That timeframe excludes
Hawaiian Electric’s CIP CT-1 and several MECO Maalaea units.

ENVIRONMENTAL ISSUES

 

  •  

Include Volcano National Park volcanic air emissions in the background baseline
for the Regional Haze Program.

 

  •  

EPA’s Regional Haze Rules, designed to protect visibility in National Parks, are
ambiguous as to the effect of naturally occurring haze. Controlling visibility
impairing emissions from Company units would be fruitless and very expensive.

 

  •  

Allow electrical generation units to switch to green fuels (biofuels) without
triggering New Source Review (NSR).

 

  •  

Fuel switching could result in increased emissions (primarily NOx), potentially
triggering NSR. Costs of NOx control on existing units switching to biofuels
would be exorbitant with no appreciable benefit since we do not have a NOx
problem in Hawaii.

35 Greenhouse Gas (GHG) Issues

Transforming the state’s energy dependence on oil to higher levels of efficiency
and renewable energy will substantially reduce Hawaii’s Greenhouse Gas (GHG)
emissions. Therefore, the parties agree:

 

  •  

All parties will support a policy for non-carbon or low carbon alternatives in
future energy resource planning and selection (i.e. no coal);

 

  •  

The parties will support and select alternatives which help the State and
utility meet the GHG requirements;

 

  •  

Guiding principles in GHG reduction measures include freedom of choice for
energy consumers, a preference for incentives and market-based measures over
regulatory penalties, and a balancing of the climate change mitigation burden
fairly across all GHG emitters;

 

  •  

The parties will work collaboratively on State and federal GHG legislation to
support the HCEI agreements and measures that take Hawaii’s unique conditions
into account (e.g., HPOWER, potential federal exemptions, etc.);

 

  •  

Because of the uncertainties of GHG legislation at the State and federal level,
the parties agree to suspend any decision to implement a State REC system until
such time when these legislative actions become clear;

 

  •  

The State shall support and expedite approvals of necessary infrastructure and
rate structures, including smart metering, which enable and accelerate measures
designed to reduce GHG emissions;

 

  •  

As a goal during the renewal of power purchase contracts, the parties agree to
move the Independent Power Producers to “green” alternatives and GHG compliance.

 

42

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36 Telling the Energy Story

Public understanding of the Hawaii Clean Energy Initiative’s long-term energy
security benefits for the State of Hawaii is critical for its success. Taking
real action to achieve a clean energy future for our State requires commitment
from all stakeholders – State government (including administration, legislature
and regulators), utilities, other businesses (including transportation),
communities, environmental groups and others. To that end, the parties agree to
the following:

The State will take the lead in educating its citizens and businesses on the
value of the Hawaii Clean Energy Initiative.

The State, with inputs from the utilities, and other stakeholders, will develop
a common set of messages about the importance, rationale for and scope of the
Hawaii Clean Energy Initiative. These may include:

 

  •  

As an island state, without interconnections to a mainland grid, developing
clean local energy sources and fully embracing energy efficiency is critical to
increase Hawaii’s energy security.

 

  •  

Many solutions for our islands will be different than elsewhere and must take
into account the unique conditions of our small, remote, independent utility
grids.

 

  •  

Reducing our dependence on imported oil must address both electricity and
transportation.

 

  •  

Maintaining and upgrading the electric grid is essential to supporting reliable,
renewable energy and to using technologies (such as advanced metering) that give
customer options for better managing energy use.

 

  •  

Variable renewable sources — such as wind, solar, ocean and hydro — must be an
important part of our energy mix. To reliably add large amounts of intermittent
renewable energy sources to our small island grids, we need proper planning, new
and developing technologies, a mix of fuel-flexible generation resources, and
new operational practices.

 

  •  

Substantial investment will be necessary to develop local renewable energy fuel
sources. Energy costs may be higher at first, but in the long run can be more
stable than with current volatile oil pricing. In addition, future greenhouse
gas or carbon taxes will increase the cost of fossil fuels even further.

These are investments in Hawaii’s future we must be willing to make. These are
benefits, including energy security and protecting the environment, which we
cannot put a price on. By ensuring energy security and protecting Hawaii’s
special environment, we are creating a more responsible, cleaner future for our
families, our communities and our islands. The utility and the State will work
together to communicate these key messages to the public.

To maximize public awareness and understanding of this big picture, the
communications campaign should utilize a full range of communication vehicles
including utility advertising, free media and person-to-person communications
with interested groups. Resources for such communications shall be authorized
and recoverable.

 

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37 How We Stay on Track

With the Hawaii Clean Energy Initiative, the State, the Consumer Advocate and
Hawaiian Electric Company have reached a series of agreements that are critical
to shaping Hawaii’s energy future. We are each committed to doing our respective
parts to carry out our agreements. To that end, the parties agree that:

 

  •  

The State and utilities will identify a set of metrics that capture and quantify
the important elements of the HCEI, and will set up a program to collect that
information, calculate the metrics, and regularly report to citizens and
stakeholders on the accomplishments of the HCEI relative to its goals;

 

  •  

The Hawaiian Electric utilities commit to integrate the renewable energy
resources, and our responsibilities for achieving the target goals of the
programs specified in the Hawaiian Electric’s Renewable Energy Commitments
provided in Exhibit A;

 

  •  

The Hawaiian Electric utilities’ implementation plan and activities are detailed
in Exhibit B. The Parties will meet quarterly and work collaboratively to ensure
and monitor the performance and progress in achieving these commitments;

 

  •  

If one party feels another is not living up to their obligations, they will
first raise that issue directly with the other party;

 

  •  

If there is a substantive breach of this agreement by a party(ies), the other
party(ies) is not bound by any provisions that remain unexecuted of this
agreement, and may change their position on any dockets already pending before
the Commission; and

 

  •  

Any amendment or modification of this agreement shall not be valid unless it is
in writing and signed by the parties. Any waiver hereunder shall not be valid
unless it is written and signed by the party against whom waiver is asserted.

 

44

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HECO TIMELINE

HAWAIIAN ELECTRIC COMPANY, INC. (HECO)

 

          Cumulative Target Goal (MW by year-end)

Renewable Energy Commitments

        2010    2015    2020    2025    2030

RENEWABLE GENERATION

                 

IPP Projects (info based on IPP proposals)

                 

Kahuku Wind

      30.0    30.0    30.0    30.0    30.0

Sea Solar OTEC

         25.0    100.0    100.0    100.0

Lockheed Martin OTEC

         10.0    10.0    10.0    10.0

Molokai and/or Lanai Wind

         400.0    400.0    400.0    400.0

Honua Waste-to-Energy

         6.0    6.0    6.0    6.0

C&C Waste-to-Energy

         11.0    11.0    11.0    27.0

RFP Non-firm RE

         100.0    100.0    100.0    100.0

Utility Projects

                 

Airport DSG (Bio-fuel)

      8.0    8.0    8.0    8.0    8.0

DG at substations (Bio-fuel)

         30.0    30.0    30.0    30.0

CIP CT-1 (Bio-fuel)

      110.0    110.0    110.0    110.0    110.0

CIP CT-2 (Bio-fuel)

         110.0    110.0    110.0    110.0

Military DG (Biofuel)

         50.0    62.5    75.0    75.0                            

Total RE Generation

      148.0    890.0    977.5    990.0    1,006.0

ENERGY EFFICIENCY/CUSTOMER SITED GENERATION

                 

PV (through feed-in tariff or PPA)

      6.5    23.0    65.0    108.0    140.0

Solar Opportunity

                 

Mandatory Solar Roofing, SB644

      1.0    3.0    6.0    9.0    11.0

Pay-As-You-Save Solar Program

      2.0    6.0    10.0    15.0    19.0

PV Host Program

      2.0    12.0    22.0    32.0    42.0

Net Energy Metering

      5.0    23.0    57.0    97.0    127.0

Distributed Generation & Distributed Energy Resources

      0.0    8.0    15.5    23.0    35.0

Seawater Air Conditioning

      0.0    16.0    16.0    16.0    16.0                            

Total EE/DG

      16.5    91.0    191.5    300.0    390.0

TOTAL RE & EE/DG

      168.5    1,015.0    1,220.0    1,358.0    1,481.0

PEAK REDUCTION/PEAK SHIFTING

                 

Demand Response Program & Load Management

      60.0    73.0    89.0    103.0    116.0

Pricing Programs

                 

Residential TOU Rates

   }               

Commercial TOU Rates

      2.0    10.0    20.0    31.0    41.0

Industrial TOU Rates

                 

Critical Peak Pricing

      2.0    24.0    31.0    37.0    44.0

TRANSPORTATION ELECTRIFICATION

                 

Plug-In Hybrid Cars

      600    36,000    66,000    96,000    126,000

(# of Cars, Oahu Only)

                 

 

45

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HELCO TIMELINES

HAWAII ELECTRIC LIGHT COMPANY, INC. (HELCO)

 

          Cumulative Target Goal (MW by year-end)

Renewable Energy Commitments

        2010    2015    2020    2025    2030

RENEWABLE GENERATION

                 

IPP Projects (info based on IPP proposals)

                 

PGV Geothermal

      8.0    8.0    8.0    30.0    30.0

Hamakua Biomass or Hu Honua

         25.0    25.0    25.0    25.0

Hawaii County Waste-To-Energy

         4.0    4.0    4.0    4.0

Sopogy Solar

      0.5    0.5    0.5    0.5    0.5

Na Makani Wind and PSH

         4.5    4.5    4.5    4.5                            

Total RE Generation

      8.5    42.0    42.0    64.0    64.0

ENERGY EFFICIENCY/CUSTOMER SITED GENERATION

                 

PV (through feed-in tariff or PPA)

      1.8    7.8    18.0    30.0    39.0

Solar Opportunity

                 

Mandatory Solar Roofing, SB644

      1.0    4.0    8.0    12.0    15.0

Pay-As-You-Save Solar Program

      0.2    1.0    3.0    4.0    5.0

PV Host Program

      2.0    7.0    12.0    17.0    22.0

Net Energy Metering

      1.3    6.0    14.0    24.0    32.0

Distributed Generation & Distributed Energy Resources

      2.7    6.6    10.0    12.6    12.5                            

Total EE/DG

      9.0    32.4    65.0    99.6    125.5

TOTAL RE & EE/DG

      17.9    80.4    115.0    172.6    202.5

PEAK REDUCTION/PEAK SHIFTING

                 

Demand Response Program & Load Management

      0.0    1.0    4.0    4.0    4.0

Pricing Programs

                 

Residential TOU Rates

   }               

Commercial TOU Rates

      0.2    2.0    3.0    3.0    5.0

Industrial TOU Rates

                 

Critical Peak Pricing

      0.2    4.0    5.0    6.0    8.0

TRANSPORTATION ELECTRIFICATION

                 

Plug-In Hybrid Cars

      1,200    7,200    13,200    19,200    25,200

(# of Cars, Hawaii Only)

                 

 

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MECO TIMELINES

MAUI ELECTRIC COMPANY, LTD (MECO)

 

          Cumulative Target Goal (MW by year-end)

Renewable Energy Commitments

        2010    2015    2020    2025    2030

RENEWABLE GENERATION

                 

IPP Projects (info based on IPP proposals)

                 

Shell Wind

         21.0    21.0    21.0    21.0

Lanai Solar

      1.2    1.2    1.2    1.2    1.2

Oceanlinx Wave

         2.7    2.7    2.7    2.7

Pulehu Biomass

         6.0    6.0    6.0    6.0

Landfill gas (Waste-to-Energy)

      Unknown status.

KWP II

         21.0    21.0    21.0    21.0                            

Total RE Generation

      1.2    51.9    51.9    51.9    51.9

ENERGY EFFICIENCY/CUSTOMER SITED GENERATION

                 

PV (through feed-in tariff or PPA)

      1.8    7.8    18.0    30.0    39.0

Solar Opportunity

                 

Mandatory Solar Roofing, SB644

      1.0    3.0    6.0    9.0    11.0

Pay-As-You-Save Solar Program

      0.1    2.0    3.0    5.0    6.0

PV Host Program

      2.0    7.0    12.0    17.0    22.0

Net Energy Metering

      2.2    10.0    24.0    42.0    54.0

Distributed Generation & Distributed Energy Resources

      1.8    4.8    7.8    10.8    12.0                            

Total EE/DG

      8.9    34.6    70.8    113.8    144.0

TOTAL RE & EE/DG

      10.5    92.5    131.7    177.7    209.9

PEAK REDUCTION/PEAK SHIFTING

                 

Demand Response Program & Load Management

      4.0    8.0    9.0    10.0    10.0

Pricing Programs

                 

Residential TOU Rates

   }               

Commercial TOU Rates

      0.2    2.0    3.0    5.0    6.0

Industrial TOU Rates

                 

Critical Peak Pricing

      0.2    4.0    6.0    7.0    8.0

TRANSPORTATION ELECTRIFICATION

                 

Plug-In Hybrid Cars

      1,200    7,200    13,200    19,200    25,200

(# of Cars, Maui Only)

                 

 

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HECO TIMELINE

HAWAIIAN ELECTRIC COMPANY, INC. (HECO)

The following milestones are agreed upon by the parties. Any deviation from the
milestones will need to be justified by the party and parties involved.

 

        2008   2009   2010   2011   2012   2013   2014   2015

Item

 

ACTIVITIES & TASKS

  Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2
  Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4

RENEWABLE GENERATION - IPP Projects

                                                           

Kahuku Wind

  Complete term sheet   X                                                      
      Perform IRS/Negotiate PPA       X                                        
                Commercial operation date (proposed by IPP)             X      
                                         

Sea Solar OTEC

  Complete term sheet   X                                                      
      Perform IRS & PRS/Negotiate PPA         X                                
                      Commercial operation date (proposed by IPP)              
                            X                  

Lockheed Martin OTEC

  Awaiting proposal from IPP           X                                        
         

Molokai and/or Lanai Wind

  Bifurcate bids from RFP Non-firm RE     X                                    
                      Implementation studies               X                    
                            Developers update proposals/pricing                
X                                               Perform IRS/Negotiate PPA      
              X                                           Submit PPA for
approval                       X                                      

Honua Waste-to-Energy

  Complete term sheet   X                                                      
      Perform IRS/Negotiate PPA       X                                        
                Commercial operation date (proposed by IPP)                    
        X                                

C&C Waste-to-Energy

  Request PUC Waiver from competitive bidding                                  
                            Perform IRS/Negotiate PPA                 X        
                                      Commercial operation date (proposed by
IPP)                                 X                            

RFP Non-firm RE

  Developers’ Proposals due   X                                                
            Select short list of bids     X                                    
                   

RENEWABLE GENERATION - Utility

                                                           

Airport DSG (Biofuel)

  Execute DSG Agreement   X                                                    
        File DSG Agreement for PUC Approval     X                              
                            Commercial operation date                   X      
                                   

DG at substation (Biofuel)

  Emission test     X                                                          
Engineering/Technical Evaluation             X                                  
                Permits and approvals                                          
                    Conversion/Installation                                    
                       

CIP CT-1 (Biofuel)

  Construction complete         X                                              
        Commercial operation date           X                                  
               

CIP CT-2 (Biofuel)

  Request for waiver to PUC     X                                              
            PUC application for project     X                                  
                     

Bio-fueling of Existing Units

  Testing on K3             X                                                  
Biofuel testing study complete                   X                              
           

Military DG

  Prepare DG Proposal(s) (timing based on RFP)       X                          
                              Negotiate DG Agreements               X          
                                      Permitting and Approvals                  
          X                                   Commercial operation date        
                                    X                

ENERGY EFFICIENCY/CUSTOMER SITED GENERATION

                                                           

PV

  Request opening of feed-in tariff docket       X                              
                       

Mandatory Solar Roofing, SB644

  Revisions to address SB644 issues     X                                      
                 

Pay-As-You-Save Solar Program

  Application to expand program to 2,500 systems (statewide)     X              
                                         

PV Host Program

  Complete program design.     X                                                
          Submit Program application for PUC approval     X                    
                                   

Net Energy Metering

  File stipulation with PUC to replace system cap with circuit cap             X
                                               

Energy Efficiency

  1) Initiate energy usage study         X                                      
                2) Lead potential study for energy efficiency, demand response,
and renewable substitution         X                                            
          3) PUC, State, utilities identify 6 energy efficiency measures        
X                                                       4) Deliver new measures
          X                                                   Distributed
Generation &
Distributed Energy Resources   Review DG interconnection tariff Rule 14H, as
modified May 2008, for transparency, efficiency, and opportunities for process
improvement. Specify the interconnection study requirements for each general
type of DG, the time required, and the utility process and time for mitigating
grid issues.         X                                                      
Develop modifications, if necessary, to Rule 14H.             X                
                                  Develop and complete a Locational Value Map  
          X                                                

Facilitate Development of Solar Generation

  Complete review of utility properties such for use as PV and/or CSP sites    
  X                                                      

Seawater Air Conditioning

  PUC approval of higher customer rebates completed   X                        
                                 

PEAK REDUCTION/PEAK SHIFTING

                                                           

Demand Response Program

  1) Implement HECO Residential Dynamic Prilcing Pilot program, filed April
2008, pending PUC approval     X                                                
          2) Customer portal (info feedback) proposal part of AMI system
application     X                                                           3)
File HECO CIDLC and RDLC program renewals, including aggregator plan of action  
    X                                                         4) File HECO CIDLC
program aggregator pilot             X                                          
        5) File recommendations for demand response to address frequency
fluctuations from intermittent RE             X                                
                  6) Evaluate Res DPP program, determine schedule to apply as
option to all HECO residential, consider application to C&I customers as option
              X                                              

Residential TOU Rates

  1) Implement residential inclined block rates in HELCO 2006, HECO 2007, and
MECO 2007 rate cases, pending PUC approval       X                              
                          2) Implement aggressive residential TOU optional rates
in HECO 2009 rate case, filed July 2008, pending PUC approval             X    
                                              3) File PHEV rate application,
that encourages off peak vehicle charging, to coincide with commercialization of
PHEVs.                                                            

Commercial TOU Rates

  1) Apply existing optional TOU rates to C&I customers with AMI meters on
opt-out basis (customers without AMI may opt-in to TOU)       X                
                                        2) Initiate COS study by TOU rate
periods as basis for mandatory C&I TOU     X                                    
                      3) Complete COS study and design mandatory C&I TOU rate  
            X                                                 4) Eliminate load
factor blocks and implement flat rates for all C&I customers in HECO’s 2009 rate
case, filed July 2008, pending PUC approval             X                      
                            5) Mandatory TOU rates to apply to all C&I customers
with demand charges when C&I AMI deployment is complete                        
                                   

DECOUPLING

  Decouple utility revenues           X                                        
         

 

48

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HELCO TIMELINES

HAWAII ELECTRIC LIGHT COMPANY, INC. (HELCO)

The following milestones are agreed upon by the parties. Any deviation from the
milestones will need to be justified by the party and parties involved.

 

        2008   2009   2010   2011   2012   2013   2014   2015

Renewable Energy Commitments

 

ACTIVITIES & TASKS

  Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2
  Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4
RENEWABLE GENERATION - IPP
Projects                                                                        
                                                PGV Geothermal   Complete term
sheet     X                                                           Perform
IRS/Negotiate PPA           X                                                  
  Commercial operation date (proposed by IPP)                     X            
                            Hamakua Biomass or Hu Honua   Complete term sheet  
  X                                                           Perform
IRS/Negotiate PPA           X                                                  
  Commercial operation date (proposed by IPP)                     X            
                            Hawaii County Waste-To-Energy   County council did
not approve project.                                                            
Sopogy Solar   Perform IRS/Negotiate PPA   X                                    
                        Commercial operation date (proposed by IPP)     X      
                                                  Na Makani Wind and PSH  
Complete term sheet       X                                                    
    Perform IRS/Negotiate PPA             X                                    
              Commercial operation date (proposed by IPP)       Awaiting update
by Na Makani Wind                                                         Dec.
1, 2008. No update received.                                                
ENERGY EFFICIENCY/CUSTOMER SITED GENERATION                                    
                        PV   Request opening of feed-in tariff docket       X  
                                                    Mandatory Solar Roofing,
SB644   Revisions to address SB644 issues     X                                
                        Pay-As-You-Save Solar Program   Application to expand
program to 2,500 systems (statewide)     X                                      
                  PV Host Program   Submit Program application for PUC approval
      X                                                       Net Energy
Metering   File stipulation with PUC to replace system cap with circuit cap    
        X                                                 Distributed Generation
&
Distributed Energy Resources   Review DG interconnection tariff Rule 14H, as
modified May 2008, for transparency, efficiency, and opportunities for process
improvement. Specify the interconnection study requirements for each general
type of DG, the time required, and the utility process and time for mitigating
grid issues.         X                                                      
Develop modifications, if necessary, to Rule 14H.             X                
                                  Develop and complete a Locational Value Map  
          X                                                 Facilitate
Development of
Solar Generation   Complete review of utility properties for use as PV and/or
CSP sites       X                                                      
PEAK REDUCTION/PEAK SHIFTING                                                    
        Demand Response Program &
Load Management   1) File HELCO load management programs with aggregator plan of
action         X                                                       2) File
recommendations for demand response to address frequency fluctuations from
intermittent RE             X                                                  
3) Evaluate Res DPP program, determine schedule to apply as option to all HELCO
residential (contingent upon full scale installation of AMI meters and
communication system. Consider application to C&I customers as option          
    X                                               Residential TOU Rates   1)
Implement residential inclined block and TOU rates in HELCO 2006 rate case,
pending PUC approval       X                                                    
    2) Implement aggressive residential TOU optional rates in HELCO 2009 rate
case                                                               3) File PHEV
rate application, that encourages off peak vehicle charging, to coincide with
commercialization of PHEVs.                                                    
        Commercial TOU Rates   1) Apply C&I TOU rates proposed in HELCO 2006
rate case on an interim basis to C&I customers selecting AMI meters, on opt-out
basis (customers without AMI may opt-in to TOU)       X                        
                                2) Eliminate load factor blocks and implement
flat rates for all C&I customers in HELCO’s 2009 rate case                      
                                        3) Mandatory TOU rates to apply to all
C&I customers with demand charges when C&I AMI deployment is complete          
                                                  DECOUPLING   Decouple utility
revenues, timing contingent on filing date of 2009 HELCO rate case              
                                             

 

49

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MECO TIMELINES

MAUI ELECTRIC COMPANY, LTD (MECO)

The following milestones are agreed upon by the parties. Any deviation from the
milestones will need to be justified by the party and parties involved.

 

        2008   2009   2010   2011   2012   2013   2014   2015

Renewable Energy Commitments

 

ACTIVITIES & TASKS

  Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2
  Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4 RENEWABLE
GENERATION - IPP Projects                                                      
      Shell Wind   Complete selection of performance standards     X            
                                              Perform IRS/Negotiate PPA        
X                                                       Commercial operation
date (proposed by IPP)   Awaiting update by Shell Wind                          
                      Lanai Solar   Perform IRS/Negotiate PPA   X              
                                              Commercial operation date
(proposed by IPP)     X                                                        
Oceanlinx Wave   Complete NUG form   Awaiting revised proposal form by Oceanlinx
                                                Pulehu Biomass   Complete term
sheet       X                                                         Perform
IRS/Negotiate PPA           X                                                  
  Commercial operation date (proposed by IPP)   Awaiting update by Pulehu
Biomass                                                         Landfill gas
(Waste-to-Energy)     Unknown Status                                            
    KWP II   Settlement Agreement   X                                          
                  Perform Wind Integration Study       X                        
                                Perform IRS/Negotiate PPA       X              
                                          Commercial operation date (proposed by
IPP)             X                                                 ENERGY
EFFICIENCY/CUSTOMER SITED GENERATION                                            
                PV   Request opening of feed-in tariff docket       X          
                                            Mandatory Solar Roofing, SB644  
Revisions to address SB644 issues     X                                        
                Pay-As-You-Save Solar Program   Application to expand program to
2,500 systems (statewide)     X                                                
        PV Host Program   Submit Program application for PUC approval       X  
                                                    Net Energy Metering   File
stipulation with PUC to replace system cap with circuit cap             X      
                                          Distributed Generation & Distributed
Energy Resources   Review DG interconnection tariff Rule 14H, as modified May
2008, for transparency, efficiency, and opportunities for process improvement.
Specify the interconnection study requirements for each general type of DG, the
time required, and the utility process and time for mitigating grid issues.    
    X                                                       Develop
modifications, if necessary, to Rule 14H.             X                        
                          Develop and complete a Locational Value Map          
  X                                                 Facilitate Development of
Solar Generation   Complete review of utility properties for use as PV and/or
CSP sites       X                                                       PEAK
REDUCTION/PEAK SHIFTING                                                        
    Demand Response Program & Load Management   1) File MECO load management
programs with aggregator plan of action         X                              
                        2) File recommendations for demand response to address
frequency fluctuations from intermittent RE             X                      
                            3) Evaluate Res DPP program, determine schedule to
apply as option to all MECO residential (contingent upon full scale installation
of AMI meters and communication system. Consider application to C&I customers as
option               X                                               Residential
TOU Rates   1) Implement residential inclined block rates in MECO 2007 rate
case, pending PUC approval       X                                              
          2) Implement aggressive residential TOU optional rates in MECO 2009
rate case                                                               3) File
PHEV rate application, that encourages off peak vehicle charging, to coincide
with commercialization of PHEVs.                                                
            Commercial TOU Rates   1) Apply C&I TOU rates proposed in MECO 2007
rate case on an interim basis to C&I customers selecting AMI meters on opt-out
basis (customers without AMI may opt-in to TOU)       X                        
                                2) Eliminate load factor blocks and implement
flat rates for all C&I customers in MECO’s 2009 rate case                      
                                        3) Mandatory TOU rates to apply to all
C&I customers with demand charges when C&I AMI deployment is complete          
                                                  DECOUPLING   Decouple utility
revenues, timing contingent on filing date of 2009 MECO rate case              
                                             

 

50

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Existing renewable IPP contracts with energy charge tied to oil prices

 

  

Name

 

Prime Mover
[Primary Fuel]

 

Contract Effective
Term
[Term Years]

Hawaiian Electric Company, Inc.

   

H-POWER

 

Steam Turbine

[Mun Waste]

  Mar 31, 1986 (Jun 30, 1992 for FCA) to Jul 31, 2015 or at least 52 months’
advance notice to terminate [25]

Hawaii Electric Light Company, Inc.

   

Puna Geothermal Ventures

 

Geothermal Turbine

(ten 3 MW) [Geothermal]

  Mar 25, 1986 (Feb 14, 1990 for FCA) to at least Dec 31, 2027 [minimum 35]

Hawi Renewable Development, Inc. [HRD]

 

Wind Turbine [Wind]

(sixteen .660 MW)

  May 19, 2006 to at least May 18, 2021 (minimum 15)

Tawhiri Power LLC (wholly owned subsidiary of Apollo Energy Corporation)

 

Wind Turbine

(fourteen 1.5 MW: Group A

(8,6,4,1,3)—7.5 MW; Group B (13,12,7,5,2,

14,11,10,9)—13.5 MW)

[Wind]

  Apr 3, 2007 to at least Apr 2, 2027 [minimum 20]

Wailuku River Hydroelectric Limited Partnership

 

Hydro Turbine

(two 5 MW) [Water]

  Mar 6, 1991 to May 12, 2023 [30]

Maui Electric Company, Ltd.

   

Hawaiian Commercial & Sugar [HC&S] (a division of Alexander and Baldwin)

 

Steam Turbine 5 steam

(TG3 10, TG4 18, TG5 16, TG1 10, TG2 2)

and 3 hydro (Kaheka 4.5, Paia 0.9, Hamakua 0.6)

[Bagasse]

  Nov 30, 1990 to at least Dec 31, 2014

Kaheawa Wind Power, LLC — Owner; UPC Wind Management, LLC — Operator; Kaheawa
Wind Farm — Facility

 

Wind Turbine

(twenty 1.5 MW) [Wind]

  Jun 9, 2006 to at least Jun 8, 2026 [minimum 20]

Makila Hydro, LLC

  Hydro Turbine [Water]   Sep 22, 2006 to at least Sep 21, 2026 [minimum 20]

Note:

Utility’s filed short-term avoided energy cost and filed Schedule Q rate are
tied to fossil fuel prices.

 

51