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GM 1116

Informing the Legislature that on May 19, 2026, the Governor signed the following bill into law: SB2694 SD2 HD2 CD1 (ACT 016).

2026 Regular Session

Establishes inflation-indexed automatic adjustment mechanisms for Hawaii water carrier rates, allowing changes between rate cases with a 5% annual cap and a defined review schedule

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Bill Summary · GM 1116

Summary of SB2694 SD2 HD2 CD1 (Act 016) — Hawaii, 2026

Purpose and intent

  • Establish automatic adjustment mechanisms (AAMs) for water carriers to address inflation, regulatory lag, and other economic factors.
  • Create a structured framework for updating water carrier rates between formal rate cases, with specific inflation-indexed adjustments tied to wharfage rate changes.

Key provisions and changes

  • New statutory addition: Section 271G-automatic adjustment mechanisms for water carriers.
    • The Hawaii Public Utilities Commission (the Commission) must establish AAMs for each water carrier.
    • AAMs may be initiated by the Commission or upon application by a water carrier.
    • AAMs are to be submitted as a forty-five-day tariff transmittal filing or as part of a general rate case (per section 271G-17(f)).
  • Timeline and scope of AAMs by year:
    • By July 1, 2026: The Commission must establish a water carrier inflationary cost index AAM for each water carrier.
    • AAM specifics:
    • The adjustment reflects the annual percentage change in wharfage rates set by the Department of Transportation, Harbors Division.
    • Application of the adjustment:
      • Annually through June 30, 2029 (three-year cycle), then
      • Possible annual application from July 1, 2029 through June 30, 2033, per subsequent subsections.
    • Cap: AAMs shall not exceed 5% per year.
  • Schedule of application and review:
    • 2026-2029 (three-year cycle):
    • Year 1 and Year 2: Apply the AAM annually.
    • Year 3: Water carrier must file an application for rates, fares, or charges to be effective in Year 3, subject to standard rate increase review under 271G-17(d)-(e).
    • 2029-2033 (subsequent cycle):
    • Years 1, 2, and 4: Apply the AAM annually.
    • Year 3: Carrier must file an application for proposed rates to be effective in Year 3, subject to standard rate increase review.
  • Exemptions:
    • Agricultural water customers receiving preferential rates under section 269-26.5 are exempt from any automatic adjustment mechanism.
  • Definitions:
    • Adds a definition for “Automatic adjustment mechanism” to mean a rate adjustment mechanism allowing a water carrier to change rates between rate cases.
  • Tariff and rate-change processes (general):
    • Tariffs must be filed, published, and kept open for public inspection.
    • Changes in rates or charges require 45 days’ notice (except automatic adjustment mechanism changes, which require 30 days).
    • The Commission may adjust notice requirements for good cause.
    • Suspension and hearing procedures preserved; the Commission has up to six months to issue a final order on a rate change after a hearing, otherwise the proposed changes go into effect.
    • The burden of proof in rate-change hearings lies with the water carrier to prove just and reasonable adjustments.
  • Additional procedural mechanics:
    • If a rate increase application is filed, temporary rate increases may be authorized upon proof of probable entitlement and financial need, with detailed accounting and potential refunds with interest if later found unjustified.
    • The Commission can waive or exempt a water carrier from all or part of the requirements upon demonstration that requirements are unjust, unreasonable, or not in the public interest.

Affected parties

  • Water carriers regulated under Hawaii Revised Statutes Chapter 271G.
  • Consumers of water transportation services provided by these carriers.
  • Agricultural water customers currently receiving preferential rates under section 269-26.5 (exempt from AAMs).

Procedural and timeline notes

  • Effective date: July 1, 2026.
  • Sunset: The Act would repeal July 1, 2033, with 271G-5 and 271G-17 reenacted as they read on the day before the Act’s effective date.
  • The Act requires the Commission to implement AAMs by July 1, 2026 and details their operation through 2033.

Overall impact

  • Introduces inflation-indexed, automatic rate adjustment tools for water carriers to better align rates with economic conditions and harbor-related cost changes.
  • Creates a predictable, time-bound framework for when and how adjustments can occur, while preserving traditional rate-change proceedings and public notice requirements.
  • Provides a mechanism to ensure revenue adequacy for carriers while safeguarding consumer protections, with explicit exemptions for certain agricultural customers.

Compiled from official sources — confirm details with the bill’s official record.

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