State lawmakers punted or abandoned critical pieces of Gov. Linda Lingle's energy package this year, deferring a number of the most difficult issues to the state Public Utilities Commission

Lawmakers agreed to increase the state tax credits designed to encourage more people to install solar hot water heaters and electrical systems, and instructed the PUC to set up a pilot program to make solar systems more affordable for some homeowners.

But lawmakers backed away from key elements of the Lingle plan, which the administration predicted at the start of the session would save the state 110 million barrels of crude oil from 2006 to 2020. That would keep an estimated $6.32 billion circulating in the state economy, money that now leaves the state to pay for oil imports, the administration said.

Hawai'i relies on oil for about 90 percent of its energy needs, a higher percentage than any other state.

Ted Liu, director of the state Department of Business, Economic Development & Tourism, acknowledged "there were compromises" on the most contentious of the administration's energy proposals, with several referred to the Public Utilities Commission to resolve.

Lynne Unemori, director of corporate communication for Hawaiian Electric Co., said the utility agreed the PUC was the place to hash out complex energy issues.

"The Public Utilities Commission really is the body that would have the big-picture understanding of how those issues all relate to each other, and be able to sort through them to make an informed decision on the issues, because that's their purpose," she said.

HECO REQUIREMENTS

Life of the Land Executive Director Henry Curtis said the Legislature talked about energy self-sufficiency, but didn't follow through in many cases.

Lawmakers declined to adopt a Lingle administration proposal that would have made Hawaiian Electric Co. generate at least 20 percent of its electricity from renewable sources such as wind, solar and geothermal. Instead, lawmakers imposed a 10 percent renewable requirement.

The Legislature handed off to the PUC another administration proposal to remove from HECO's control more than $19 million a year the utility collects from 425,000 customers statewide to finance HECO-sponsored conservation and renewable-energy programs.

That money finances programs such as subsidies for homeowners who install solar water-heating systems, but HECO is keeping much of that money instead of using it to promote alternative energy.

The Lingle administration said the utility spent only about $7.6 million of the $19.2 million collected in 2004 on conservation or renewable energy programs, with the rest going for "shareholder incentives" and to compensate the utility for lost sales.

The Lingle administration proposed giving the entire $19 million HECO collects for the program to an independent entity that would be required to spend at least 90 percent of it on alternative-energy programs.

HECO argued it is entitled to keep much of the money to compensate the utility for electricity sales it loses because of conservation and renewable energy programs.

In the end, lawmakers authorized the PUC to establish a "public benefits fund" to receive all or some of the $19 million a year, but did not require that the agency do so.

Liu said he is confident the PUC will take a close look at the issue, and said that scrutiny may pressure HECO to devote more of the $19 million to conservation and renewable programs.

RENEWABLE ENERGY

The Lingle administration also wanted to tighten a critical component of the 2004 Renewable Portfolio law that required electric utilities to increase their use of more renewable sources of power.

The law as passed in 2004 requires the utility to shift 20 percent of its load away from fossil fuels by the year 2020, either by increasing efficiency or switching to renewable sources such as wind and solar power.

The administration wanted to amend that requirement to demand that the utility actually generate 20 percent of the power it sells from renewable sources. In other words, increased efficiencies that reduce demand for power wouldn't count toward the 20 percent requirement.

Lawmakers instead approved an amendment that allows the utility to achieve half of the 20 percent by generating power from renewable sources, and half through increased efficiency.

Critics such as Life of the Land's Curtis contend the utility can meet that modest renewable energy requirement without any large-scale switch to renewable sources over the next 14 years.

However, Liu said the PUC has the power to demand the utility generate more electricity from renewable sources. The 10 percent figure is merely a minimum requirement, he said.

The measure approved by lawmakers this year also allows the PUC to impose sanctions on HECO if the company does not meet the renewable energy and efficiency targets.

Another issue that was shifted to the PUC was a proposal to modify the "fuel price adjustment clause," a mechanism that allows HECO to automatically pass on to consumers any cost increase for the fossil fuels the company burns to produce power.

The Lingle administration wanted lawmakers to instruct the PUC to modify or eliminate the clause to make sure HECO shares the cost when oil prices rise. The administration reasoned that if HECO can simply pass along any oil price increases to consumers, the company has little incentive to shift to renewables.

HECO pointed out 35 other states have mechanisms similar to the fuel-price adjustment clause, and the utility makes no money from the arrangement. A company spokesman also argued HECO is aggressively pursuing renewable projects on Maui, O'ahu and the Big Island, and planning more.

SHARED COSTS

In the end lawmakers instructed the PUC to find a way to share the risk of fossil fuel cost increases "fairly" between the utility and its customers, while at the same time encouraging the utility to develop renewable power sources, and also protecting HECO's bottom line.

Since the word "fairly" isn't defined in the bill, it is unclear what effect the measure might have.

House Energy and Environmental Protection Committee Chairwoman Hermina Morita said lawmakers sent clear policy signals that they want to steer the state toward greater use of renewable energy.

However, there are some complex technical problems to be worked out before renewable can be more fully incorporated as power sources, "and that's not going to be decided in the Legislature, and that's why we're punting a lot back to the PUC," said Morita, D-14th (Kapa'a, Hanalei).

Lawmakers also set aside $10 million for a new hydrogen investment capital special fund to finance research, investment and educational programs focusing on hydrogen as an alternative fuel, and put up $5 million for a program to install solar systems to generate electricity on at least one public school each on Kaua'i, Maui, O'ahu and the Big Island.

State Sen. Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai), called the energy package "the biggest step toward energy independence in state history."

With a PUC now controlled by Lingle appointees, Hemmings said he is confident the agency will follow through to reduce Hawai'i's dependence on oil.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com.