HB640

SECTION 1. The legislature finds that Hawaii is dependent on imported oil for more than ninety-two per cent of its energy needs, making it the most vulnerable state in the nation to economic disruption in the event of upheavals in the world oil market. Moreover, during periods of supply curtailment, the State's need to ensure basic public emergency services to safeguard public health, safety, and welfare, such as police and fire protection, hospital and ambulance services, and utility emergency services, competes with the need to maintain Hawaii's economy and employment levels, not to mention the continued operations of the State's transportation, commerce, industry, construction, government, the military, and agriculture. Other factors, including Hawaii's geographic isolation and lack of overland access to energy sources, make the State unique in its near total reliance on imported oil and vulnerability to supply disruptions. The recent catastrophic events of Hurricane Katrina underline the need for Hawaii to severely reduce its dependence on foreign oil.

State law already requires the State to establish policies designed to increase energy self-sufficiency and energy security, including the use of renewable resources. In particular, section 226-18(a), Hawaii Revised Statutes, of the Hawaii State Planning Act requires planning for the State's facility systems with regard to energy to include "[i]ncreased energy self-sufficiency where the ratio of indigenous to imported energy use is increased" and "[g]reater energy security in the face of threats to Hawaii's energy supplies and systems." Similarly, section 226-103(f), Hawaii Revised Statutes, establishes priority guidelines for energy use and development to "[e]ncourage the development, demonstration, and commercialization of renewable energy sources."

The legislature further finds that Hawaii is blessed with an abundance of renewable energy resources, including wind, solar, hydropower, geothermal resources, ocean thermal energy conversion, and wave energy. In particular, Act 272, Session Laws of Hawaii 2001, recognized "the economic, environmental, and fuel diversity benefits of renewable energy resources" and the need to "encourage the establishment of a market for renewable energy in Hawaii using the State's renewable energy resources." Act 272 further noted that "while Hawaii is a national leader in the development of renewable energy resources for electricity production, there may be more that the State can do to encourage the development and implementation of renewable energy. These efforts can reduce the amount of imported oil used for the generation of electricity."

Accordingly, the purpose of this Act is to lessen Hawaii's dependence on imported oil and encourage the greater use of renewable energy by establishing "energy enterprise zones" to accommodate wind farms and other indigenous and renewable energy resources with a minimum of red tape, and for encouraging the development of renewable energy resources.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

ENERGY ENTERPRISE ZONES

§ -1 Purpose. The purpose of this chapter is to reduce the State's dependence on imported oil and increase the State's energy self-sufficiency by providing for the establishment of energy enterprise zones.

§ -2 Definitions. As used in this chapter:

"Department" means the department of business, economic development, and tourism.

"Energy enterprise zone" means an area nominated by, and within the jurisdiction of, a county government, and subsequently declared by the department to be eligible for the benefits of this chapter.

"Establishment" means a single physical location where electric energy is generated. A qualified business may include one or more establishments, any number of which may be in an energy enterprise zone.

"Full-time employee" means any employee for whom the employer is legally required to provide employee fringe benefits.

"Nonutility generator" means a person that produces electric power but is not an energy utility, including any person who:

(1) Controls, operates, or manages plants or facilities for the production, transmission, or furnishing of power, whether in whole or in part, from any energy source, including nonfossil fuel or renewable energy sources; and

(2) Provides, sells, or transmits any or all of that power, either directly or indirectly to an energy utility for transmission to the public.

"Qualified business" means any nonutility generator that is:

(1) Authorized to do business in this State; and

(2) Is engaged in producing electric power from:

(A) Wind energy;

(B) Solar energy;

(D) Landfill gas;

(E) Waste to energy;

(F) Geothermal resources;

(G) Ocean thermal energy conversion;

(H) Wave energy;

(I) Biomass, including municipal solid waste;

(J) Biofuels or fuels derived entirely from organic sources;

(K) Hydrogen fuels derived entirely from renewable energy; or

(L) Fuel cells where the fuel is derived entirely from renewable sources;

for sale primarily to an energy utility for resale to the public.

"Taxes due the State" means income taxes due under chapter 235.

§ -3 Administration. The department shall administer this chapter and have the power and duty:

(1) Establish criteria for determining what areas qualify as energy enterprise zones. The criteria shall be the minimum required for implementation of the purpose of this chapter;

(2) Monitor the implementation and operation of this chapter;

(3) Conduct a continuing evaluation program of energy enterprise zones;

(4) Assist counties in obtaining the reduction of rules within energy enterprise zones;

(5) Submit annual reports evaluating the effectiveness of the program and any recommendations for legislation to the legislature and the governor;

(6) Administer and enforce the rules adopted by the department; and

(7) Administer this chapter in such a manner that the area to be designated as an energy enterprise zone will most benefit the area and the State.

§ -4 Energy enterprise zone designation. (a) The governing body of any county may apply in writing to the department to have an area declared to be an energy enterprise zone. The application shall include a description of the location of the area or areas in question, and a general statement identifying proposed local incentives to complement the state and any federal incentives.

(b) The department shall approve the designation of up to twenty areas in each county as energy enterprise zones for a period of twenty years. The department shall adopt rules setting forth appropriate standards for the designation of energy enterprise zones.

§ -5 Application review. (a) The department shall review each application upon receipt and shall secure any additional information that the department deems necessary for the purpose of determining whether the area described in the application qualifies to be declared an energy enterprise zone.

(b) The department shall complete review of the application within sixty days of the last date designated for receipt of an application. After review of an application, the department shall approve, in writing, those applications having the greatest potential for accomplishing the purposes of this chapter; provided that the number of allowable energy enterprise zones for the county as established under section ‑4(b), is not exceeded. If an application is denied, the department shall inform the governing body in writing of that fact together with the reasons for the denial.

§ -6 Government assistance; prohibition. There shall be no duplication of existing state tax incentives to qualified businesses that locate in an energy enterprise zone.

§ -7 Rules. The department, in consultation with the department of taxation, shall adopt rules pursuant to chapter 91 to implement this chapter, including rules relating to health, safety, building, planning, zoning, and land use that shall supersede all other inconsistent ordinances and rules relating to the use, zoning, planning, and development of land and construction in an energy enterprise zone. Rules adopted under this section shall follow existing law, rules, and ordinances as closely as is consistent with standards meeting minimum requirements of energy efficiency, health, and safety. The department may provide by rule that lands within an energy enterprise zone shall not be developed beyond existing uses or that improvements thereon shall not be demolished or substantially reconstructed, or provide other restrictions on the use of the zone.

§ -8 Eligibility; qualified business; sale of property or services. (a) Any nonutility generator may be eligible to be designated a qualified business for purposes of this chapter if the nonutility generator:

(1) Begins the operation of a nonutility generator within an energy enterprise zone;

(2) During each taxable year has at least per cent of its energy enterprise zone establishment's gross receipts attributable to the active production of electric power within the energy enterprise zone;

(3) Increases its average annual number of full-time employees by at least per cent by the end of its first tax year of participation; and

(4) During each subsequent taxable year at least maintains that higher level of employment.

(b) A nonutility generator also may be eligible to be designated a qualified business for purposes of this chapter if the nonutility generator:

(1) Is actively engaged in producing electric power in an area immediately prior to an area being designated an energy enterprise zone;

(2) Meets the requirements of subsection (a)(2); and

(3) Increases its average annual number of full-time employees employed at the nonutility generator's establishment or establishments located within the energy enterprise zone by at least per cent annually.

(c) After designation as an energy enterprise zone, each qualified business in the zone shall annually complete and submit to the department, on a form supplied by the department, the information necessary for the department to determine whether the nonutility generator qualifies as a qualified business. If the department determines that the nonutility generator qualifies as a qualified business, then the department shall approve the completed form and forward copies of the completed and approved for to the department of taxation and the governing body of the county.

(d) A completed form approved by the department, referred to in subsection (c), shall be prima facie evidence of the eligibility of a nonutility generator for the purposes of this section.

(e) Any electric power produced by a nonutility generator outside of an energy enterprise zone shall not be included in the determination of gross receipts attributable to the active production of electric power under subsection (a)(2).

§ -9 State business tax credit. (a) The department shall certify annually to the department of taxation the applicability of the tax credit provided in this chapter for a qualified business against any income taxes imposed under title 14 that are due the State. The credit shall be:

(1) Eighty per cent of the tax due for the first taxable year that the business qualifies as a qualified business;

(2) Seventy per cent of the tax due for the second taxable year that the business qualifies as a qualified business;

(3) Sixty per cent of the tax due in the third taxable year that the business qualifies as a qualified business;

(4) Fifty per cent of the tax due in the fourth taxable year that the business qualifies as a qualified business;

(5) Forty per cent of the tax due in the fifth taxable year that the business qualifies as a qualified business;

(6) Thirty per cent of the tax due in the sixth taxable year that the business qualifies as a qualified business; and

(7) Twenty per cent of the tax due in the seventh year that the business qualifies as a qualified business.

Any tax credit not usable shall not be applied to future taxable years.

(b) When a partnership is eligible for a tax credit under this section, each partner shall be eligible for the tax credit provided for in this section on the partner's income tax return in proportion to the partner's income tax liability from the partnership. Any qualified business earning taxable income from the production of electric power, both within and without the energy enterprise zone, shall allocate and apportion its taxable income attributable to that production. Tax credits provided for in this section shall only apply to taxable income of a qualified business attributable to the production of electric power within the energy enterprise zone.

(c) In addition to any tax credit authorized under this section, a qualified business shall be entitled to a tax credit against any taxes due the State in an amount equal to a percentage of unemployment taxes paid pursuant to chapter 383. The amount of the credit shall be equal to:

(1) Eighty per cent of the unemployment taxes paid for during the first taxable year that the business qualifies as a qualified business;

(2) Seventy per cent of the unemployment taxes paid for the second year that the business qualifies as a qualified business;

(3) Sixty per cent of the unemployment taxes paid for the third year that the business qualifies as a qualified business;

(4) Fifty per cent of the unemployment taxes paid for the fourth year that the business qualifies as a qualified business;

(5) Forty per cent of the unemployment taxes paid for the fifth year that the business qualifies as a qualified business;

(6) Thirty per cent of the unemployment taxes paid for the sixth year that the business qualifies as a qualified business; and

(7) Twenty per cent of the unemployment taxes paid for the seventh year that the business qualifies as a qualified business.

(d) Tax credits provided for in subsection (c) shall only apply to the unemployment tax paid on employees employed at the qualified business' establishment or establishments located within the energy enterprise zone. Any tax credit not usable shall not be applied to future tax years.

§ -10 State general excise and use tax exemptions. The department shall certify annually to the department of taxation that any qualified business is exempt from the payment of general excise taxes on the gross proceeds from the sale of electric power to an energy utility for resale to the public. The department shall also certify annually to the department of taxation that any qualified business is exempt from the use tax for purchases by the qualified business. The gross proceeds received by a contractor licensed under chapter 444 shall be exempt from the general excise tax for construction within an energy enterprise zone performed for a qualified business within an energy enterprise zone. The exemption shall extend for a period not to exceed seven years after the effective date of this Act.

§ -11 Local incentives. (a) In applying for designation as an energy enterprise zone, the applying county may propose local incentives, including:

(1) Reduction of permit fees;

(2) Reduction of user fees; and

(3) Reduction of real property taxes.

(b) The application also may contain proposals for regulatory flexibility, including, but not limited to:

(1) Special zoning districts;

(2) Permit process reform;

(3) Exemptions from local ordinances; and

(4) Other public incentives proposed in the locality's application, which shall be binding upon the locality upon designation of the energy enterprise zone.

§ -12 Termination of energy enterprise zone. Upon designation of an area as an energy enterprise zone, the proposals for regulatory flexibility, tax incentives, and other public incentives specified in this chapter shall be binding upon the county governing body to the extent and for the period of time specified in the application for zone designation. If the county governing body is unable or unwilling to provide any of the incentives set forth in section ‑11 or other incentives acceptable to the department, and the department has not adopted rules pursuant to section ‑7 that supersede inconsistent ordinances and rules relating to the use, zoning, planning, and development of land and construction in an energy enterprise zone, then the energy enterprise zone shall terminate. Qualified businesses located in the energy enterprise zone shall be eligible to receive the state tax incentives provided by this chapter even though the zone designation has terminated. No nonutility generator may become a qualified business after the date of zone termination. The county governing body may amend an application submitted pursuant to section ‑4 with the approval of the department; provided that the county governing body proposes an incentive equal to or superior to the unamended application."

SECTION 3. It is the intent of this Act not to jeopardize the receipt of any federal aid nor to impair the obligation of the State or any agency thereof to the holders of any bond issued by the State or by any such agency, and to the extent, and only to the extent, necessary to effectuate this intent, the governor may modify the strict provisions of this Act, but shall promptly report any such modification with reasons therefor to the legislature at its next session thereafter for review by the legislature.

SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 5. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	640
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII