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Editor’s Note: Read Part 1 of this investigation, which reveals how a solar mandate for water heaters on new homes has a gaping loophole.

Many of the 327 landowners who have been approved for variances to the state’s solar mandate are individual homeowners. But some are developers, and their participation wasn’t supposed to be allowed.

Civil Beat found one engineer who sought 37 exemptions on a single day and an architect who has applied for 152 this year. A lawmaker who helped craft the law says it’s being “abused” by a select few.

The state employee in charge of reviewing applications told Civil Beat that he wasn’t aware that the law wasn’t intended to include developers and his boss, the head of the state’s Energy Office, said he’ll try to revise the law next year.

Some developers and contractors want to use gas-powered systems because they are cheaper to install than solar systems. But because owners can make back the difference — and then some — over the life of a solar heating system, the Legislature wanted to make sure homeowners, and not developers, were the ones making the decision about what would be installed in new homes.

After approving described as the first in the nation to require solar water heaters for all new single-family homes, lawmakers came back in 2009 to clarify the law’s intent.

“Therefore, the legislature intended for a consumer to have the option to use gas appliances with the full knowledge that such a system may be more costly and less efficient,” states Part VII of an that included the clarification. “To obviate any attempt to circumvent Act 204, then, the legislature intends that if the potential variance applicant is not the party who will ultimately pay for the energy cost consumption, then only paragraph (1), (2), or (3) of subsection (a) in , Hawaii Revised Statutes, should apply.”

Developers Barred From Gas Exemption

In the law, there are four reasons a homeowner can apply for an exemption. The clarification established that developers could only use the first three:

1. Lack of sun.
2. Cost-benefit analysis that shows solar won’t save owner money within 15 years.
3. If another renewable technology is used to heat water.

Glaringly left out is Paragraph 4 — the tankless gas-powered water heater loophole. If an applicant’s home includes at least one other gas appliance, that home can seek an exemption to use a “demand” system, which uses gas to heat the water when it’s needed.

Developers have been taking advantage of that loophole anyway.

On May 28, engineer Albert Hahn of Douglas Engineering Pacific submitted 37 variance applications on behalf of , a proposed community development on Kauai’s South Shore.

Each home, when built, will include a gas-powered range, dryer and tiki torches. Of the 40 applications submitted this year by Kukuiula — all of which have been approved — 20 are for properties still listed in tax records as owned by Kukuiula Development Company. The other 20 list different owners.

Hahn, who was the 2009-10 Hawaii Chapter president of the American Society of Heating Refrigerating and Air Conditioning Engineers, explains that solar doesn’t make sense in every case.

“If you don’t use it on a daily basis, especially in a state like Hawaii, then the next day, it’s going to be even hotter,” he told Civil Beat. Not only will lightly-used systems fail to pay back their cost over the life of the home, he said, but they’ll burn out even sooner than usual because some parts won’t work as intended.

“If it sits idle for six months a year, then it doesn’t make very much sense,” Hahn said Tuesday. He described Kukuiula as a community of second or third vacation homes, with its own private golf course.¹

When complete, Kukuiula will include 1,500 residential units; an 18-hole golf course designed by 1973 British Open winner Tom Weiskopf for residents and club members; a 95,000-square-foot private clubhouse; and a 25-acre farm and lake. A representative said Tuesday that approximately 80 units have been sold, between 10 and 20 are under construction, and the first two residential homes are expected to be delivered in January 2011. Home prices are in the $2 million range.

A Kukuiula spokeswoman confirmed the rationale for the variance applications, saying the development “opted for gas because it was more efficient in terms of energy use since most of the residents are not going to be year-round residents.”

Hahn said the solar water heater law “doesn’t make sense,” something the mechanical engineering community would have told the Legislature if it come to them earlier.

Representative Angry About Abuse

State Rep. Hermina Morita, a Democrat of Kauai’s North Shore and Eastside and chair of the House Energy and Environmental Protection Committee that worked on the legislation, was angered when told about the variances on her own island.

“There are a handful of individuals who are intent in undermining the intent of the law. We tried to give as much flexibility as possible, we tried to give as much leeway as possible to some legitimate concerns,” she said. “But I know it’s being abused, and it looks like it’s being abused by a handful of architects. And I’m not sure how to approach that problem except asking DBEDT to ensure that this isn’t the architects’ preference but this is the homeowners’ preference.”

Energy Analyst Dean Masai, who said he’s the state staffer tasked with reviewing the applications, said Tuesday that developers have applied for, and been granted, variances.

“I didn’t realize that developers were excluded from the tankless gas water heater,” he said when Civil Beat read him the text of the 2009 bill clarifying the Legislature’s intent. “I didn’t understand the intent of that phrase there, that paragraph.”

State Energy Administrator Ted Peck had a similar reaction Tuesday when Civil Beat went through the contents of the 2009 bill and state law. “Ohhhhhh. In other words, if it’s a developer, then they can’t do the gas variance.”

When Civil Beat asked about the 37 Kauai variance applications submitted by Hahn on the same day, Peck laughed heartily for a few seconds, then asked that Civil Beat put its questions in e-mail form.

State Energy Chief Wants to Revise Law

Later Tuesday, Peck called Civil Beat and explained his office’s limitations in following legislative intent.

“I talked to our AG (Attorney General), and what I understand is that doesn’t have the force of statute. That part doesn’t get written in the statute. So we’ve been operating according to statute, not according to the bill itself,” Peck said.

“Legislative intent is a squirrelly thing. We of course always want to work with legislative intent, and we would be pleased to enforce that, but it doesn’t have the force of statute.”

“Case history is ambiguous as to whether something that’s written in the preamble of a bill is applicable as statute would be.”

“In any case, we’re going to work with the Legislature and the administration next year to see if we can get that more explicit and more defendable.”

Kukuiula wasn’t alone in taking advantage of the loophole.

152 Applications from One Architect

Architect Robert Smelker was the first to apply for a variance, on Jan. 8, and he hasn’t stopped since. He’s personally applied for 152 variances in the first 10 months of 2010 — nearly half of all those submitted statewide. His firm lists his address as a Honolulu post office box, but Smelker apparently does his work on the Big Island.

According to the [pdf] of variance applications, Smelker often identified building supply companies like and as his clients. On others, the the owner/developer/contractor field was left blank altogether.

Contacted by Civil Beat and told about the focus of this story, Smelker said, “I’m not interested,” and hung up the phone. Repeated voice messages left at his office and on his cell phone were not returned.

One of Smelker’s clients explained why he sought a variance for a gas-powered water-heating system.

Steve Menezes is general contractor on the Hilo side of the Big Island who builds “spec houses” — homes built on the speculation that the owner will find a buyer.

“In Puna, the house prices are probably the cheapest in the state,” he told Civil Beat Tuesday. “To add $5,000 to the cost of a new dwelling is a big hit, especially now when things are depressed.

“I applied for the variance because to put in an on-demand propane water heater costs about $1,500 as compared to $5,000-plus for the solar water heating system. It’s purely dollars and sense. Economics. I can now offer this house for $3,500 less or thereabouts than if I had to put a solar water heating system in. We shave a few thousand dollars here and there, and then the buyers can afford it,” he said.

Told about the 2009 bill that clarified the law’s intent and expressly prohibited developers and speculators from taking advantage of the exemption if they’re not going to be living in the home, Menezes flashed annoyance at lawmakers.

He noted that he’s already well on his way to finishing the house with a gas-powered, not solar-powered, water heater because his variance application was approved.

“They’re being granted as a matter of course, as I understand it.”