SB3326 SD1

SECTION 1. The legislature finds that the State's electricity customers continue to experience the highest electricity prices in the nation, and that affordability of electric service is a paramount and overriding public interest concern for the State. Exorbitant and volatile electricity costs impose substantial and continuing burdens on households, businesses, public institutions, and critical services, exacerbating cost of living pressures, undermining economic competitiveness, and affecting the overall quality of life in the State.

The legislature further finds that restructuring the electric industry to separate electric generation from transmission and distribution, with generation operated under separate ownership and control from regulated transmission and distribution services, can accelerate the timely deployment of renewable energy resources by allowing the electric utility to focus on transmission and distribution investment while enabling competitive generation development. This acceleration is essential to stabilizing electricity costs over the long term, reducing exposure to volatile fuel prices, and improving affordability for ratepayers. Increased deployment of renewable energy resources enabled by the separated and expanded transmission and distribution investment will support the creation of skilled, family‑sustaining jobs in electric system planning, construction, operations, and maintenance, and will promote local economic development through increased private investment, workforce demand, and long-term infrastructure development within the State.

The legislature further finds that constraints in transmission and distribution capacity, together with delays and inefficiencies in generation procurement and project development, have limited the timely interconnection of new renewable generation; including both utility-scale renewable projects and customer-sited distributed energy resources; slowed renewable integration; and contributed to continued reliance on high-cost legacy resources, undermining the State's ability to achieve long-term cost stability for consumers. Inadequate investment in transmission and distribution infrastructure has delayed or restricted interconnection for residential and commercial distributed energy resources, including rooftop solar and energy storage, and has contributed to outages, extended restoration times, wildfire risk, and public safety concerns. Increased and more focused investment in the distribution system, supported by a clearer focus on transmission and distribution functions, is necessary to support customer generation, local resilience, broader participation in the clean energy transition, and targeted improvements in grid reliability, hardening, wildfire mitigation, and system resilience.

The legislature also finds that, beginning in the 1990s, a number of states undertook structural reforms of their electric industries, including full or partial separation of electricity sectors to allow for competitive generation segments while maintaining regulated transmission and distribution as natural monopolies. Retail competition in electric generation has been adopted in multiple states, and in those state jurisdictions, competition has encouraged innovation, improved efficiency and service quality, and enabled cost reductions. However, Hawaii has not undertaken comparable structural separation and, with limited exceptions, electric service within the State continues to be provided primarily through vertically integrated monopoly utility operations. The experiences of other states that have restructured their electric industries may provide useful guidance, but any restructuring in Hawaii must be tailored to the State's unique and separated island electric systems, scale, and operational characteristics, including the absence of a statewide organized wholesale market, and to the State's public policy objectives.

The legislature further finds that chapter 269, Hawaii Revised Statutes, vests the public utilities commission with authority to regulate electric utilities in the public interest and to adopt rules necessary to carry out the purposes of that chapter, and that the legislature retains authority to determine the fundamental structure of the electric industry within the State as a matter of state policy. Advances in technology, changes in customer demand, the growth of distributed energy resources, and evolving energy policy objectives have altered the fundamental characteristics of the electric power sector.

The legislature further finds that past electric industry restructuring efforts in other jurisdictions demonstrate the importance of maintaining resource adequacy, coordinated system planning, and effective regulatory oversight during periods of transition, and that the policy established by this Act is intended to avoid the risks associated with premature or uncoordinated market restructuring.

The legislature further finds that electric utilities generally are facing increasing capital, reliability, and public safety demands during the clean energy transition, including the need to modernize aging infrastructure, harden systems against wildfire and climate-related risks, and integrate higher levels of renewable and distributed energy resources. Providing clear statutory direction regarding industry structure supports prudent long-term planning, reduces regulatory uncertainty, and enables an orderly and phased implementation that protects ratepayers and promotes financial and system stability.

The legislature additionally finds that Hawaii relies on an aging electric generation fleet, including legacy units that have been in service for decades. Continued reliance on old and deteriorated electric power infrastructure, historically dependent on some of the costliest, least efficient, and most polluting fuels, has contributed to high costs borne by ratepayers. Reinvesting ratepayer funds in outdated generation facilities diverts limited customer dollars away from more affordable and reliable energy solutions. This underscores the urgent need to modernize and harden the electric system to improve reliability, reduce the frequency and duration of outages, protect public safety, and avoid economic disruption to communities and local businesses.

Accordingly, the purpose of this Act is to require the separation of ownership and control of electric energy generation services from transmission and distribution services to promote efficiency, innovation, transparency, and competition in the electric energy generation sector while protecting ratepayers and ensuring reliable, affordable, and sustainable electric service.

SECTION 2. Chapter 269, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§269- Separation of electric generation services from transmission and distribution services; requirements. (a) The public utilities commission shall adopt rules to require separate ownership and control of electric generation services from transmission and distribution services in the State, in furtherance of and pursuant to this chapter.

(b) The commission shall establish and implement a restructured electric industry in which electric generation services are open to competition and are provided by entities that are not under common ownership or control, directly or indirectly, with the electric utility, its parent holding company, or any affiliated entity, and that do not have any direct or indirect ownership interest, management role, governance rights, or material financial interest in electric generation services within the electric utility or its affiliated entities, while transmission and distribution service to end-use consumers shall continue to be provided by the electric utility as regulated monopoly services.

(1) Ensure nondiscriminatory access to transmission and distribution facilities on just and reasonable terms for all providers of electric generation services, consistent with electric system reliability and public safety;

(2) Require and enforce accounting, operational, and code of conduct requirements sufficient to promote transparency and prevent cross-subsidization, undue preference, or discrimination between transmission and distribution operations and any generation-related interests;

(3) Ensure preservation of electric system reliability, continuity of service, and universal service obligations during and after implementation of the separation of ownership and control required by this section;

(4) Ensure provision for the fair and reasonable recovery, through lawful regulatory mechanisms, of prudently incurred costs associated with existing electric generation assets, including but not limited to stranded assets that may result from the separation required by this section, consistent with the public interest and protection of ratepayers;

(5) Preserve all existing statutory programs and protections for customers, including consumer protection, energy efficiency, renewable energy, demand response, customer self-generation, and distributed energy resource programs, unless expressly modified by the legislature;

(6) Require phased or staged implementation of the separation of ownership and control required by this section, including sequencing or transitional steps as appropriate to maintain electric system reliability, continuity of service, and public safety;

(7) Provide for interim arrangements, as appropriate, governing the provision of electric generation, transmission, and distribution services during the transition period, including consideration of existing contracts and obligations, to reduce financial and operational risk and to support system stability during implementation;

(8) Protect and support workforce stability and continuity of skilled labor necessary to maintain electric system reliability, public safety, and continuity of service during and after the transition, including the protection of existing labor and collective bargaining agreements;

(9) Require improvements in transmission and distribution investment, including grid hardening, wildfire mitigation, outage prevention, faster restoration, and expanded interconnection capacity for utility-scale and distributed renewable generation;

(10) Ensure coordination between the electric utility and providers of electric generation services during any transition period to support operational continuity, resource adequacy, and electric system reliability;

(11) Provide for transparency and meaningful stakeholder participation in the rulemaking and implementation process, consistent with chapter 91;

(12) Require the separation of ownership and control of electric generation assets and generation procurement functions from transmission and distribution operations, including provisions governing the disposition or transfer of existing generation assets and contracts, consistent with electric system reliability, the public interest, and the protection of ratepayers;

(13) Address the treatment of existing and future power purchase agreements with independent power producers; provided that the rules shall preserve and not impair existing contractual rights, lender protections, and step-in agreements established under state law, including protections established pursuant to part XI of this chapter; provided further that any rules adopted pursuant to chapter 91 shall ensure that, following implementation of the separation of ownership and control required by this section, the electric utility providing transmission and distribution service is not the long-term contracting party for electric generation, except as necessary on a transitional basis or to support default service, electric system reliability, or resource adequacy; provided further that the rules shall not require the renegotiation or modification of existing power purchase agreements, except by mutual agreement of the parties; provided further that the rules may provide for the assignment, novation, or other lawful transfer of existing power purchase agreements, or alternative contractual arrangements, in a manner that preserves existing financing structures, credit support arrangements, and electric system reliability, and minimizes financial risk to ratepayers; and

(14) In adopting rules pursuant to chapter 91, consider at a minimum, the impacts of the required separation on electric system reliability, resource adequacy, affordability for ratepayers, transition costs, workforce stability, wildfire and public safety risk, and the need for coordinated system planning during and after implementation.

(d) The public utilities commission may establish milestones or benchmarks, as appropriate, to measure progress toward implementation of the separation of ownership and control required by this section.

(e) The separation of ownership and control required by this section shall prohibit direct or indirect ownership, control, management, or any material financial interest, whether voting or non-voting, active or passive, in electric generation services by the electric utility providing transmission and distribution service, its parent holding company, or any affiliated entity, including through subsidiaries, intermediate entities, contractual arrangements, or other means that would have the effect of circumventing this section.

(f) This section shall not apply to an electric utility organized and operating as an electric cooperative.

(g) Upon the request of the commission, the electric utility and any state or county agency shall provide any information relevant to the rulemaking proceedings required under this section.

(h) The rules adopted pursuant to this section shall:

(1) Ensure an orderly transition;

(2) Be in compliance with all applicable state laws;

(3) Be conducted in a manner designed to support timely decision-making and implementation;

(4) Be adopted in a single rulemaking proceeding; and

(5) Not condition initiation of rulemaking under this section on the completion of any separate adjudicatory, investigative or planning docket.

(i) For the purposes of this section "separation of ownership and control" means the separation of electric generation services from transmission and distribution services through separate ownership and governance, including separation at the operational, decision-making, and financial levels, sufficient to eliminate incentives for preferential treatment or cross-subsidization, or undue influence directly or indirectly between generation and transmission and distribution functions."

SECTION 3. The public utilities commission shall submit a report of its findings and recommendations, including any proposed legislation, to the legislature no later than days after the initiation of rulemaking required by this Act.

SECTION 4. The public utilities commission shall submit a report of its findings and recommendations, including any proposed legislation, to the legislature no later than sixty days prior to the convening of each regular session until the final rules required under this Act are adopted pursuant to chapter 91, Hawaii Revised Statutes.

SECTION 5. Each report to the legislature required under sections 3 and 4 of this Act shall describe the rulemaking, including progress made toward implementing the separation of ownership and control of electric generation services from transmission and distribution services, any issues or barriers encountered that may affect timely adoption of the required rules, and any recommendations for statutory changes the public utilities commission determines are necessary to fully implement this Act, including proposed legislation necessary to carry out the purposes of this Act.

SECTION 6. 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 that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 7. New statutory material is underscored.

SECTION 8. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	3326
THIRTY-THIRD LEGISLATURE, 2026		S.D. 1
STATE OF HAWAII