The state has taken money away from a successful energy program to give it to a failing one.

The budget of Hawaii Energy, a program that helped reduce electricity use by providing free or low-cost efficient appliances and other products, has been cut by about 26 percent in recent years.

Hawaii Energy has saved more than 4 billion kilowatt-hours, roughly $1 billion in energy costs, since it began in 2009.

Despite the success, Hawaii Energy’s annual budget has dropped by $10 million from its previous level of $38 million in part to pay for a newer energy program called Green Energy Market Securitization, or GEMS.

GEMS, which was created by the Legislature in 2013, raised roughly $150 million through a bond sale and was to have lent all the money for renewable-energy projects by the end of November 2016. To date the program has lent only $2.8 million, less than 2 percent of its funds. It has spent $2.9 million on administrative costs since inception, and interest payments during the 15-year life of the bonds will total $33 million.

Part of the GEMS costs is being covered by taking money from Hawaii Energy. The result is fewer energy efficiency programs.

“We have had to make cuts and adjustments across the board,” said Hawaii Energy Executive Director Brian Kealoha.

Initiatives reduced

The program has cut back on the number of free home energy kits it can offer. The kits include energy-efficient power strips and shower heads to help residents lower bills. Instead of offering lighting retrofits to small businesses for free, the agency now has to charge a fee. Community outreach about the energy program has been reduced.

Hard-to-reach customers — such as low-income families and small mom-and-pop shops — are missing out on projects that would reduce their electrical bills because of the cut in funding, said Jim Flanagan, a consultant for the state Public Utilities Commission tasked to oversee Hawaii Energy.

“We just didn’t have enough money,” Flanagan said in an interview.

Ratepayers pay for GEMS through a $1.50 item on their electrical bill called the “Green Infrastructure Fee.” The state PUC allowed that line item to be carved out of the Public Benefit Fund, the charge on electrical bills that is used to pay for Hawaii Energy programs.

“The Legislature’s intentions were good with GEMS, but it’s a hard one,” Flanagan said. “Hawaii Energy has done a great job over the last seven years. We have met our goals but it’s getting harder.”

GEMS has failed to lend out more of its money in part because of changes in the renewable-energy marketplace that came about just as GEMS was starting. GEMS was designed to help homeowners who couldn’t afford the upfront cost of rooftop solar. GEMS would lend money for rooftop solar, and the homeowner could pay off the loan with the savings from a reduced electrical bill. But before GEMS was up and running, private companies came in to offer similar loan packages, and the state did away with an attractive incentive program for solar.

Gwen Yamamoto Lau, executive director of the agency responsible for GEMS, said she hopes GEMS and Hawaii Energy can work together to help low-income families in new ways.

“We are asking the PUC for approval for several different projects, all of which involve energy efficiency,” Yamamoto Lau said.

She added that the program is looking to lend money to the state Department of Education as well as a community on Molokai to get solar water heaters.

“This is looking at providing $46.4 million to the Department of Education strictly on energy efficiency,” she said. “This is estimated to reduce energy consumption by about almost 35 million kilowatt-hours per year.”

Complementary efforts

Some promotions offered by Hawaii Energy include a $150 rebate on an Energy Star refrigerator after trading in an old operational one, and a $300 rebate to families that install an Energy Star heat pump water heater.

Yamamoto Lau said GEMS can work with Hawaii Energy in cases when a rebate is not enough for families that can’t afford the upfront cost of energy-efficient appliances.

GEMS is also waiting for PUC approval to provide loans to low-income families to install solar water heaters, Yamamoto Lau said. The program’s board gave approval for GEMS to loan $9.6 million for solar hot water heaters on Molokai. Yamamoto Lau said she hopes the PUC will approve that in the next few months.

“We, I think, can work in concert and complement each other toward meeting the state’s (energy efficiency) goals,” she said.

Melissa Miyashiro, chief of staff at clean-energy nonprofit Blue Planet Foundation, said the Hawaii Energy program is one of the more important initiatives to reduce the state’s use of fossil fuel, because its efforts are aimed at driving long-term behavioral change.

“Programs like these are often the first ones on the chopping block because they are inherently more difficult to measure and don’t always result in immediate impact and measurable kilowatt-hour savings,” Miyashiro said. “But these are the very programs we need to change the culture of energy in Hawaii.”

Kealoha, the Hawaii Energy director, said the impact of the changed behaviors and energy-efficiency retrofits provided by the program is equivalent to building a $90 million solar farm each year.

“(Hawaii Energy) programs can really make a big difference in people’s lives,” he said.

In March, Hawaii Energy notified the PUC it plans to take money that would have been set aside for its 2017 and 2018 program years to make up for the loss in its 2016 budget.

Kealoha said another reason Hawaii Energy funding has been reduced is because it is funded by electrical utility ratepayers, and the surcharge on customers’ bills is tied to the utility’s revenue. As the utility’s revenue drops due to the success of energy-efficiency programs and rooftop solar installations, so do Hawaii Energy funds.

“People install more solar, they’re using less energy and the utility is selling less energy,” Kealoha said. “We’ve definitely seen that being part of it.”

Possible rate increase

Flanagan said an additional $10 million for Hawaii Energy would result in projects that would lead to savings of $100 million over the life of the measures statewide. In the Hawaii Energy 2015 program year, each program dollar spent resulted in an average $9.15 bill savings over the life of the measures, Flanagan said.

The PUC has the option to increase Hawaii Energy’s budget, but to do so would cause customers’ rates to increase.

PUC Chairman Randy Iwase said he believes an increase in funding for Hawaii Energy is necessary but is taking a “wait-and-see attitude” toward the idea of increasing ratepayers’ bills for the program.

“We’re not foreclosing the need to increase the surcharge,” he said. “What we want to be able to do is demonstrate through Hawaii Energy that these programs are working, these programs are beneficial. For the public, the ratepayers, they have to be shown that this is important and it works.”