My Op-Ed article on the Aina Koa Pono situation, and how it would raise electricity rates for O’ahu residents (though the project is on the Big Island), ran in yesterday’s Star-Advertiser. Here it is in full:
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The Public Utilities Commission (PUC) is considering approving
a contract between Hawai‘i Island’s HECO-owned utility (HELCO) and a partnership known as Aina Koa Pono (AKP). Its decision is expected within the next several weeks.
Why should rate payers on O‘ahu care about this proposed
contract?
Because if approved, O‘ahu residents would pay about 90
percent of the cost – even though the very expensive fuel would only be used on the Big Island.
The contract between HELCO and AKP calls for HELCO (and you) to purchase fuel from AKP at about $200/barrel. Today, a barrel of oil costs about half that: $107. If this contract is approved, there will be a surcharge, to cover the difference, on your monthly electricity bill.
Furthermore, note that whenever oil has reached about $120/barrel, world economies have slowed precipitously. Many have gone into recession. This tells us that there is a natural economic “stop” in place that keeps oil from getting anywhere near $200/barrel.
And yet HELCO/HECO is trying to guarantee AKP a fixed price
of $200/barrel.
While a discussion of using renewable energy, rather than
primarily buying foreign oil, is warranted, when the cost of those renewables is so unrealistically high that any buyer would look for other alternatives, then that discussion has reached the point of absurdity.
What lower-cost alternatives exist for the Island of Hawai‘i?
The Island has significant geothermal resources at the equivalent price of $57/barrel. Right now, HELCO purchases only about 70 percent of the geothermal power available, meaning there is more geothermal available at well below the equivalent of $200/barrel.
HELCO currently purchases power from biofuel and hydroelectric sources that make a reasonable profit at today’s prices, and don’t ask for $200/barrel. Additional power plants are asking to come on line at today’s prices.
HECO and HELCO currently buy solar power at prices well below the equivalent of $200/barrel (in fact, from what we can tell, at less than half that price).
HECO and HELCO buy wind-generated power for far less than $200/barrel, with more potential sellers lining up to sell to them.
AKP’s plan has technical issues, as well. The process AKP plans to use has never been proven at the scale they propose; the proposed
yield of source material is many times more than ever grown anywhere. There are also cultural and environmental issues.
Finally, you might ask why O‘ahu rate payers should pay for power consumed by rate payers on another island. GOOD QUESTION.
The simple answer is that if rate payers on the Island of
Hawai‘i had to bear the burden, there is no way this could be approved. That kind of tells the whole story right there, doesn’t it?
We suggest you write to the PUC if you oppose this contract: hawaii.puc@hawaii.gov. You can also contact your State and County legislators and your Mayor.
Richard Ha, owner of Hamakua Springs Country Farms,
submitted this on behalf of the Big Island Community Coalition, of which he is a founding member. Other founding members include Dave DeLuz Jr., John E.K. Dill, Rockne Freitas, Wallace Ishibashi, Ku‘ulei Kealoha Cooper, Noelani Kalipi, Ka‘iu Kimura, Robert Lindsey, H.M. “Monty” Richards, Marcia Sakai, Lehua Veincent and Bill Walter. All operate as individuals and do not represent others. The Big Island Community Coalition (BICC) works primarily with cost issues on the Island of Hawai‘i, where residents pay about 25 percent more for electricity than do O‘ahu rate payers.
Speaking to a room of movers and shakers from Hawaii’s commercial real estate industry at the NAIOP Hawaii
Real Estate Symposium Friday at the Hawaii Convention Center, Dunkerley noted that without new product, such as hotels, tourists will eventually go elsewhere for their vacations.
Dunkerely says that Hawaiian Airlines, a subsidiary of Hawaiian Holdings Inc. (Nasdaq: HA) is doing its part by investing $11 billion in a “superior fleet.”
But Dunkerley and Hawaiian Airlines cannot do everything by themselves to save Hawai‘i.
It certainly won’t help if we increase the cost of doing business in Hawai‘i.
Q. HELCO AND HECO RECOMMEND THAT THE COST DIFFERENTIALBETWEEN THE BIODIESEL AND THE FOSSIL FUEL THE BIODIESELREPLACES SHOULD BE
SPREAD ACROSS BOTH HELCO AND HECORATEPAYERS. IN YOUR OPINION, IS THIS JUST AND REASONABLE?
The Consumer Advocate responds:
A. No. In my opinion, the entire cost premium differential should be borne by HECO ratepayers. I refer to it as a cost premium, because the price of biofuel is currently higher than the price of petroleum diesel.
O‘ahu hotels already pay high electricity costs. Let’s not price them out of the market. This does not help our tourism industry, Hawaiian Airlines or us.
For Big Islanders, our worst fear is that AKP is approved by the Public Utilities Commission. If that were to happen, we would be locked into a 20-year contract that would preclude our selecting lower cost alternatives for 1/3 of our base power electricity use.
An oil price of $200/barrel will be very damaging to the airline industry, as well as to our tourism industry.
We don’t need to be paying for $200/barrel biofuel now when we don’t have to.
The Energy Information Agency (EIA) projects oil will cost less than $150/barrel in their reference rate case during the 20-year period of the potential AKP contract.
Yet HECO chose to use the EIA’s highest rate scenario of $200/barrel.
What if they are wrong?
Why are we pursuing this alternative? It’s like we are choosing to go over the cliff now, in order to maybe prevent going over the cliff
later.
Why do we want to be first in the world to achieve cellulosic biofuel? There is a 90 percent chance of failure! It would be far smarter to copy someone else who is the first in the world. Then there would be a 90 percent chance of success.
• Are we pursuing this to stimulate economic activity? That’s just taking out of one pocket to put into another, and causing electricity rates to rise as we do it.
A rising electricity price acts like a giant regressive tax. Folks who can afford to do so leave the grid. And those who cannot leave, pay even more.
Two-thirds of our economy is made up of consumer spending. If folks had discretionary income, they would spend it, businesses would hire and people would have jobs.
The opposite is what’s happening now.
• Or are we pursuing AKP to better the lives of future generations? This proposal worsens the prospects for future generations.
We cannot let AKP pass. It would be a disaster for our economy for the next 20 years and beyond.
Because the Big Island pays 25 percent more for its electricity than O‘ahu does, it follows that Big Island schools have 25 percent less of their budgets available to pay teachers than O‘ahu’s schools. Did you ever think about it this way?
Some Big Island school complexes (an area’s elementary, middle and high school) are paying around $1 million/year just for electricity. As compared with O‘ahu, that’s around $250,000/year that isn’t going toward teachers and other education services. At $70K per teacher, that could be three full time-teachers, for instance.
On top of the Big Island having paid 25 percent more for its electricity than O‘ahu for as long as anyone can remember, our Puna district has one of the lowest median family incomes in the state.
And what’s the best predictor of family income? Level of education. Therefore, one of many benefits of cheaper electricity is that a lot more of our schools’ money would go toward educating our children. Lowering the cost of electricity would allow Puna schools more resources to focus on teachers and learning, and it follows that this could lead to increased median family incomes.
Geothermal done in a responsible manner can lower the cost of electricity. But we all must work together. It’s great that HELCO is moving forward with low-cost alternatives, such as calling for requests for proposals for expanding geothermal production.
There are a thousand reasons why NO CAN. We only need to find the one reason why CAN!
I sent in testimony, on behalf of the Big Island Community Coalition, regarding HB 106, draft 1. This bill contemplates repealing Act 97 (geothermal subzones, etc.).
We should keep the good parts of this bill and add parts that make it better. We need balance as we take care of everyone’s needs. This is about all of us, not just a few of us.
Here’s my testimony:
To the Water & Land committee
Aloha Chair Evans and Vice Chair Lowen,
The BICC is very strongly in favor of amending this bill.
There are good things in this bill; let’s leverage that. We are strongly against repealing it in its entirety.
No question: home rule should be addressed. This was an unfortunate oversight the last time around. Let’s fix it.
The heart of the bill that must be kept is the part that allows geothermal exploration and development in various land use designations. The geothermal resource exists where it exists, not where we want it to exist. So we need a larger area to explore, not less. By having more choices we can get further away from populated areas. And we can increase our chances of success. The permitting process gives the necessary checks and balances to protect the people.
The essential problem we must solve is how to protect the people from rising oil prices. Repealing Act 97 in its entirety will raise our electricity prices.
The petroleum era is less than 150 years old. Oil is a finite resource and we are observing increasing oil prices. Oil price has quadrupled in the last 10 years. In contrast, the Big Island will be over the “hot spot” for 500,000 to a million years.
Geothermal-generated electricity is less than half the cost of oil-generated electricity. And it will be stable for 500,000 years.
The Big Island’s electricity costs have been 25 percent higher than O‘ahu’s for as long as anyone can remember. The Big Island Community Coalition is a grass roots organization that was formed to drive the cost of electricity on the Big Island down.
One of the BICC members did a cost analysis of a local school district’s 12 month electricity bills – generally 2012. Their costs (total of all schools involved) averaged $115,900/month.
At O‘ahu’s rates, those costs would be $115,900/1.25 = $92,700. That’s a savings of $23,200/month or $278,400/year.
If we figure $70,000/year pay for a teacher, the difference is four teachers for the district.
Because of these kinds of things, the BICC said enough was enough. People turned out at the PUC hearings, and consequently the governor issued a press release saying that HECO/HELCO had withdrawn its proposed 4.2 percent rate hike.
No one has ever told us: “We disagree with you; we want higher electricity rates.”
The members of the BICC are Dave DeLuz, Jr., John E.K. Dill, Rockne Freitas, Michelle Galimba, Richard Ha, Wallace Ishibashi, Ku‘ulei Kealoha Cooper, D. Noelani Kalipi, Ka‘iu Kimura, Robert Lindsey, H.M. “Monty” Richards, Marcia Sakai, Kumu Lehua Veincent and William Walter.
Rising electricity rates act like a regressive tax, but worse. As electricity prices rise, folks who can afford to get off the grid will do so. Those who cannot leave, the rubbah slippah folks, will be left to pay for the grid.
If we can achieve low-cost, stable electricity, trickle-up economics can result. If the rubbah slippah folks have money to spend, they will spend. Then businesses will be able to hire, and then we won’t have to send our children away to find jobs.
There is a lot at stake here.
Good luck.
Aloha,
Richard Ha
Cell 960-1057
I’ve been to five Association for the Study of Peak Oil conferences. I was co-chair of the Geothermal Working Group authorized by SCR99, and sit on the Hawaii Clean Energy Initiative (HCEI) steering committee and the State Board of Agriculture. I’ve been to Iceland to see geothermal in operation, and I was part of the Big Island delegation that toured geothermal resources in the Philippines.
At Hamakua Springs we farm 600 fee simple acres of diversified crops. I do an Ag and energy blog at hahaha.hamakuasprings.com.
This past Friday I participated on an energy panel at the Hapuna Beach Prince Hotel called “Energy: Facing the Reality of Renewables.” Panel members were Jay Ignacio, President of Hawaii Electric Light company; Mike Kaleikini, who is General
Manager of Puna Geothermal Venture; and myself, as steering committee member of the Big Island Community Coalition.
From the Kona-Kohala Chamber of Commerce: “The 2013 Summit will further explore those initiatives via ‘panels of conversation’ on each topic. Three guests per topic have been invited to participate on panels to discuss their work with the Summit audience, ideas that inspire them and what they see as the future for Hawaii Island. Each panel will have 45 minutes of discussion followed by questions from the audience. We are pleased to have Steve Petranik, Editor of ‘Hawaii Business Magazine’ as our moderator again this year.”
There were five panels: Education, Sustainability, Employment, Energy and Health Care.
I started out by saying mixed messages are being sent out. Some say that the U.S. has enough oil and gas that we will soon replace Saudi Arabia as a world energy supplier. Using data and scientific methods, the Association for the Study of Peak Oil-USA (ASPO) has come to different conclusions. Its agenda is merely to spread the best information it has on this topic. You can learn more by viewing video at the ASPO-USA.org website.
I described the Big Island Community Coalition’s mission, which is to achieve, for the Big Island, the lowest-cost electricity in the state. Striving for a low cost solution hedges our bets. It is better to be safe than sorry. I told them that those interested in supporting this group can get on the Big Island Community Coalition mailing list.
I related how food and energy are inextricably tied together. Food security has to do with farmers farming. And if farmers make money, the farmers will farm! But while only two percent of the mainland’s electricity comes from oil, more than 70 percent of the electricity in Hawai‘i does. The mainland, of course, is our main supplier of food and our biggest competitor. As oil prices rise, Hawai‘i becomes less and less competitive.
As oil prices rise, and electricity prices rise, and farmers and other businesses become less competitive, local families have less spending money.
The answer is to find the lowest electricity cost solution. For if people have extra money, they will spend it. Two-thirds of our economy is made up of consumer spending.
Provided that the expensive and ill-advised Aina Koa Pono biofuel project does not go forward, we have a bright future ahead of us. In the pipeline is Hu Honua’s 22MW biomass burning project, and
next is 50W of additional geothermal. Add to that 38MW of present geothermal, and, assuming the old geothermal contract is renegotiated, that would amount to 110MW of stable affordable electricity. This would be more than 60 percent of the peak power use on the Big Island. Even if we do not count wind and solar renewables, this would put the Big Island on a trajectory of achieving the lowest cost electricity in the state.
What would happen if our electricity costs were lower than O‘ahu’s? We can’t even imagine it.
It would change our economy.
It would help our County government preserve services.
Fewer of our kids would have to go to the mainland to find jobs.
More of our money could be used for education, instead of paying for oil.
More people would have money to support local farmers.
Single moms would have less pressure than they do now.
Folks on the lowest rungs of the economic ladder would not be pushed over the edge.
There are lots and lots of younger folks who want to farm. Maybe they could actually make money so they could farm.
I told the audience that we on the panel were all friends. But there is too much at stake for the BICC to give ground on our goal to make the Big Island’s electricity the cheapest in the state.
During the Q & A, someone asked what we each thought about an undersea cable to connect all the islands. I replied that our primary objective is to bring low cost electricity to the Big Island before we do anything else.
The audience liked that a lot and spontaneously applauded.
Dr. Jim Kennedy, a friend of mine, is a respected member of the astronomy community and a tireless supoorter of the community at large. Below is the testimony he sent to the PUC.
Here is Bill Walter’s testimony against HELCO’s proposed 4.2 percent rate increase, which he submitted to the PUC. Tomorrow (Friday, November 30, 2012) is the deadline for all testimony against this rate increase, as well as the proposed Aina Koa Pono project. You can email your testimony to: hawaii.puc@hawaii.gov.
It’s in the interest of the utility, as well as in the interest of the people, that we all seek lower electricity rates.
To: hawaii.puc@hawaii.gov Subject: HELCO RATE INCREASE OF 4.2% – Docket 2012 – 0099
Commissioners,
Thank you for the opportunity to write you on this subject. At some point, the questions before you on various rate increases proposed by HELCO/HECO are simple:
•How much is enough? and
•When do we draw the line on increases?
We understand that while the questions are essentially fairly simple, finding answers can seem very difficult. Those wanting the rates to increase run through myriad statistics, data, logic and come up with apparently compelling reason. These answers come in an age old context of how we, as a society that is primarily market based, handle a monopoly supplier of an essential ingredient of our modern life. Over the generations the solution has typically revolved around ensuring a reasonable return on company (hence, stockholder) assets while providing a level of service that ensures quality to the community. While in a general case over the last 75 years that may have been reasonable, we suggest questioning that – at least for this community at this time. Please note the following:
• As it is, Hawaii Island rate payers pay four times the US national average for electric power. We pay a 25% premium compared to Oahu – today.
• Hawaii Island residents include among the most economically challenged in the State of Hawaii. While certainly not the only reason, the high cost of power works to keep our residents economically challenged. Why?
The cost of operating any business with more than a marginal energy input on the Island experiences higher energy costs than competition from most other locations. When you add to this the cost of getting our product to market (or the market to our product in the case of tourism) the competitive hurdle can become prohibitive to overcome. This increase will only add to that hurdle.
• Because of the integral nature of electric power to our way of life, the cost of electricity is little different in effect from the most regressive of taxes. If you look at this simile several issues jump at you:
In the last four years governments across the country have been highly reticent to raise taxes understanding the negative impact higher taxes would have on the economy and on those most economically challenged. This relates back to the point above – namely that higher electric power costs have a depressing affect on the economy of the Island of Hawaii, at their current level.
Local governments – including ours here on the Island of Hawaii – have taken extraordinary steps to reduce the cost of government services while retaining government service levels. On this island that has included furloughs of County workers, layoffs, employment freezes, job sharing, looking for efficiencies that allow for reduced expenses across the board, reductions in executive staff salaries, suspension or reduction in non essential services – and the list goes on. It is common place to hear of businesses on this island taking similar – and in some cases more radical steps to reduce expenses. It is uncomfortable, but notable that we have heard of no such steps taken by our utilities in order to try to pass on to the community reduced costs that may be helpful in these difficult times. In fact, what we have heard is like this – requests for higher prices. Somehow that difference is hard to take.
•The long term reality is that power generation is moving to dis-integration much as phone service has rapidly moved in that direction. It would be wise for both the Commission and the companies to ask if it is not time to consider this coming dis-integration. The only way for the current system to survive in the long run is to be in a price reduction, not price increase mode. The cost of standalone competition is inexorably being reduced. Sooner than later only those who cannot afford to get off the grid will have departed it – how will that work and will the commission have been a part of that scenario?
So my short answer to these questions is that “enough is already enough” and the line needs to be drawn now – for the survival both of the island economy and for the survival of the utility.
My personal response has been to join the Big Island Community Coalition looking for ways to reduce power costs. I am becoming proactive in this direction. We ask that the commission and, indeed, HELCO/HECO become proactive in this direction as well. Better that we spend our efforts looking for cost reducing solutions than for cost increasing reasons.
More PUC testimony from a Big Island resident opposing the Aina Koa Pono biofuels project and the proposed 4.2 percent HECO rate increase.
See below where he charted the price of crude oil over the past two years, as well as how much his HELCO bill increased over the same period of time, and didn’t find much correlation.
Dear Chair Morita & Commissioners:
I want to express my most sincere opposition both to the Aina Koa Pono Biofuel project and the Helco 4.2% rate hike.
In today’s day and age it is inconceivable that while we are living in one of the most privileged locations on the planet with regards to renewable energy resources availability we still depend on a single utility company that holds a true monopoly on the power generation and that continues to ignore what would be the most efficient path towards energy independence.
South Puna seats on a rich geothermal zone that could provide enough power for the entire Big Island. South Kona & Kohala areas have enough sun radiation to produce a significant supplement to the grid, and South Point and Saddle Road areas provide some of the most reliable wind patterns for wind generation. Yet, here we are debating on whether we should lock in a $200/barrel deal with a biofuel company. Who in its right mind would opt for this option!?
As for the rate hike, the following graph shows my cost per kWh at my home for the past two year (since Jan 2010)
As you can see from the graph, my price has increased from $0.36/kWh to $0.42/kWh, that is a 16.7% increase in just two years. Now they want an additional 4% increase? under what justification? meanwhile, HELCO continues to report record profits year after year.
Notice any discrepancy between the two graphs? In Jan 2010 the price per barrel of crude oil was $82.00, in November 2012 the price is $87.50 an increase of 6.7%. Helco has increased their rates 2.5 times the net increase of the price of oil, and now they want another increase.
You can send an email opposing this project. Email it by this Friday, November 30, 2012, to hawaii.puc@hawaii.gov.
To: hawaii.puc@hawaii.gov Subject: AINA KOA PONO CONTRACT
Please consider my testimony on : DOCKET # 2012-0185 (Aina Koa Pono supply Contract)
AINA KOA PONO, LLC Docket # 2012-0185
In this docket, HELCO is asking you to validate its proposed contract with AKP, passing on the expected additional cost of the project in the form of a surcharge to rate payers on both Oahu and the Island of Hawaii.
It is difficult, sometimes, to imagine a decision of this nature on the basis of the economics of the case itself.
To help us with this, AKP’s PR firm has reduced the numbers to minimize the apparent impact of the decision – simply add $1 per month to your power bill for 20 years or a total of $240. Seems pretty small, not much of a decision or even much of a risk when put in these terms. Of course this picture does not paint the costs as they apply to thousands of businesses, non profits, government entities or other organizations. Neither does this demonstrate how those costs ripple through the economy to increase costs of goods and services while reducing the supply of the same. So, lets look at this from three other perspectives before we get further into the discussion. Those three perspectives are of a family barely making ends meeting (and actually not making it accept with government and family help); a family that makes ends meet but with some sacrifices and finally a family that has plentiful resources and buys whatever luxuries they desire. But lets change the terms – to the cost of fuel for these three families.
•Ask yourself, if you were the first family if someone offered to sell you gas for the next 20 years – starting in 2015 at twice today’s average rate or about $8/gallon and at today’s usage – would you buy this package? Probably not – they are not assured that gas will cost $8/gallon over that period and can see that rather than trade a known (but apparently very high) cost of fuel they would anticipate that they would make yet more lifestyle changes. They would increase car pooling, bus riding, volume grocery buying (if possible), growing more of their own food, etc. THE POINT IS that they truly cannot and would not be able to afford the higher costs and so would take other steps to make ends meet. In the same way, to families at the bottom of the economic ladder the AKP deal is something that they cannot afford and never would select.
•If you were in the second group the situation may present itself differently, but in this case you may have more options. For instance, rather than locking into $8/gallon and at today’s usage you may decide to buy a more fuel efficient car; combine trips; consider other transportation (bikes, walking, carpooling, bus trips, etc.) reducing steps. The point is that you would have more means of reducing usage so that the $8/gallon could take you further. It is not likely that you would take the deal as presented. You have too many assured usage reducing options and too little assurance that the price will actually reach $8/gallon.
•If you were in the third group you still might not buy into the proposition. Your ability to purchase more efficient transportation -or even ignore the problem because fuel may not reach that level – is greater, the impact less.
So then, the point is that very few would even consider the option being proposed by AKP if it were put to them in terms that they work with every day. Neither should the PUC.
These scenarios may have little impact on your decision, after all your decision is really on a macro level dealing with a large company, sophisticated planning and island wide demand. For this I ask you to consider the following:
IS THE PROPOSITION REASONABLE AND IN THE PUBLIC INTEREST:
•If there are other alternatives for providing power to the Island of Hawaii that are or are likely to be less expensive then the answer is clearly “no.” Why pay more to achieve the same result (power generation) when less expensive sources are or can with a similar degree of confidence be expected to be available. So the question, then, is – are there?
• AKP’s contract appears to call for fuel at $200/barrel vs. today’s rate that bounces somewhere between $80 and $120 (but generally near the mid point – $100).
• PGV is able to produce power at the equivalent of $57/barrel – 28.5% of the cost of AKP’s proposal. This is produced with reliable and proven technology here on the island of Hawaii. it produces less carbon in the process and is a known quantity.
• LNG is proposed as a possible alternative, In fact we are told that many mainland power producers are turning to this source from coal and petroleum products. They do so because of efficiencies and reduced dependance on foreign sources. Would it not make more sense to at least wait to see what studies show the impact of LNG would be on our power costs before committing to a 20 year contract based on much higher prices?
• Ho Honua proposes to sell to HELCO at market rates. Others are taking similar risks to produce fuel at market rates – whatever they may be – even at today’s rates (i.e. Big Island Bio-Diesel).
• Other technologies are coming on stream that promise reduced power generation costs as well – solar energy or various types, bio-fuels from algae, wave action, etc. Why lock in a supplier whose promise is similar fuel but at higher prices.
•HELCO/AKP counter that if the fuel does not end up being economical – they can sell it to transportation or to other islands for their power generation. But that assumption is based on the AKP created fuel being less expensive than fuels from other sources. If it is not – then HELCO sells those fuels at a loss which the rate payer must subsidize. In short – the risk remains
•This proposal is truly a gamble not simply on the cost of fuel over the proposed period (2015 – 2034) but on the cost of alternative fuels, alternative sources of power and even over whether the target plant (Keahole) will be economically viable throughout this period. We would ask: WHAT MITIGATING FACTORS WOULD DRIVE US TO MAKE THIS GAMBLE – particularly as we consider the impact on the lives of our residents and their businesses.
WHAT QUANTITATIVE OR QUALITATIVE VALUES SHOULD BE ASSIGNED TO SUCH A PRICE PREMIUM OR EXTERNALITIES
•This is a vital question. It needs to be evaluated in its full context which includes: individuals at the lower end of the scale who cannot make ends meet today; businesses that will have to increase prices further and reduce product and service offerings further; individuals and businesses who are trying to compete with Oahu and other locations with lower power costs; companies that are evaluating the Island of Hawaii as a location but must take into account the already unusually high cost of power here as one of the deciding factors.
• The end is that many will find that their survival at any reasonable level does not allow for such luxuries as taking the risks this contract proposes. These externalities for those who struggle are too high to pay and not worth the risk.
• For those who may point out jobs to be created in the production of these fuels do not account for the jobs lost throughout the island because of the additional costs of the AKP premium and there surely will be many.
WHAT RATE PAYER RISKS SHOULD THE COMMISSION CONSIDER IN EVALUATING THE BIODIESEL SUPPLY CONTRACT?
•The risk that the market price for fuel will not in the end justify this ($220/barrel) cost
•The risk that other power sources can be developed that will be less costly
•The risk that at each level higher those able to depart from the “grid” do depart from the grid making the remaining – less and less economically capable – rate payers pay a higher and higher proportion of the distribution and generation costs. (This thing steamrolls literally).
HOW ELSE MIGHT THE COMMISSION AND HELCO PROVIDE FUEL TO KEAHOLE
•Dr. Schumpeter more than four generations ago pointed out that market systems need to encourage “creative destruction.” By this he meant that ever more efficient technologies by their nature create higher living standards while making obsolete the technologies that they replace.
This applies as follows: WHEN KEAHOLE is no longer economically viable – it needs to simply cease to operate. This is fundamentally an owner (i.e. stockholder) risk and should not remain a risk of the populace as a whole. We should not be taking extraordinary steps to keep in operation a plant that may have become functionally and technologically obsolete. Whereas there may have been a time when ensuring the viability of the assets of a controlled monopoly made sense – they no longer do.
What happened in the communications industry (i.e. cell phones vs. land line phones) will and is happening in the power generation industry. The PUC must recognize this change or the number of “well healed” customers who depart the grid will overwhelm the entire system leaving only those least able to pay on the grid having to pay for an overwhelmingly burdensome grid.
•There is, nonetheless, more than one answer to this question and arguably all of the other options are less expensive and certainly less economically risky. Keahole may be converted to operate on LNG. AKP is essentially a hedge bet – it may well be that continuing to purchase fuel on the market (whether from local sources, or other sources) will be a less expensive option. We do not know at the moment which it will be, so should we be taking this hedging risk?
OTHER CONSIDERATIONS
•AKP is essentially a complex set of transactions designed to allow HELCO/HECO to meet the State’s goal of reducing dependance on foreign fuel sources while keeping alive Keahole and increasing spot employment among other benefits. This particular scheme appears to have many benefits but at no small risk. At its heart are assumptions about the future price of oil, the capabilities of technologies untested at anywhere near the size and configuration proposed. The commission must ask itself: IS IT APPROPRIATE to ask rate payers – many of whom are at the extreme low end of the economic scale – to participate in the risk? If the answer was that there are really no other viable options the answer may be clearly and easily “yes.” But this is not the reality – there are many other alternatives and most of them at significantly lower cost. Justification for this risk taking is, in fact, scant.
•In the 1970’s the Northwest Utilities made a series of judgements based on expected power requirements and power prices. Prices assumptions were driven at that point by dramatic increases in the price of fuel and by its apparent (but not actual) scarcity. Demand was based on charts showing post WWII growth and regional growth based on increasing industrialization of the area resulting from low power prices would continue on the same upwards trendline. These factors led WPPSS to develop a complex funding scheme to build nuclear power plants. All of this was well meaning and well intentioned. The coming debacle – a $2.25 Billion default – is a classic example of what happens when we add uncalled for complexity based on a future that is much more nuanced than any chart can demonstrate. (One summary of the adventure can be found at http://columbia.washingtonhistory.org/anthology/maturingstate/seduced.aspx) Frankly, although similarly well intentioned and actually less complex – the driving factors for AKP share several of the same characteristics. For a community that is paying 4X the national average for power, 25% more than Oahu for power – this is a risk that a fragile economy simply cannot bear and should not be asked to bear.
HECO and Aina Koa Pono (AKP) both issued glowing press releases
about the AKP project. But neither would say how much AKP would be paid for its
biofuels. They said it was a secret – to protect other bidders.
They said that the average ratepayer would only pay about $1
more per month, and that this would only go into effect if AKP was successful
in producing biofuel. They said it would mean several hundred new jobs, and
lots of money would be saved by not importing oil.
The project anticipated supplying HELCO’s Keahole 80MW plant
with most of its liquid fuel needs. That would be roughly 16 million gallons
annually, plus another 8 million gallons for transportation fuel.
HECO was not being fair when it would not give price
information and yet did predict that this would be very inexpensive to rate payers
– basing all this on assumptions and secret information.
The cost of the biofuel the rate payer would subsidize, it
turns out, is around $200/barrel. This is not a small amount. By assuming that
the price of oil would be close to $200, HECO could then say that this project would
not cost the ratepayers substantially more than what they would be paying
anyway.
Try wait! No amount of public relations will earn back the
credibility lost because of this unfair assumption.
Also, AKP says, the microwave technology they plan to use has
been successfully and safely used in the herbal extraction and pharmaceutical
industries for decades.
People who know tell me that this statement is like someone
with a Piper Cub pilot’s license offering to fly you to the moon sometime in
the future. But at least this one is a claim we can research.
Both the Hilo and Kona PUC hearings made clear that the
people are vehemently against the Aina Koa Pono project. At the Kona hearing,
the Consumer Advocate asked whether people would be in favor of this project if
all the costs were paid by O‘ahu rate payers. I think the logic was that O‘ahu
residents should pay for this, because it helps O‘ahu fulfill its part of the
Hawaii Clean Energy Initiative mandate for renewable energy.
Doesn’t each island’s contribution apply to the whole state?
Try wait!
AKP claims that it’s a fact that Keahole will be using
liquid fuel far into the future.
We don’t agree that we should favor AKP’s 20-year contract,
because it precludes using lower-cost alternatives; for example, natural gas
and other technologies that are being fast tracked, such as ocean energy.
Take geothermal as an example. Generating electricity at today’s
prices using geothermal costs 11 cents/kilowatt hour less than oil. Output at
the 80MW Keahole plant (which is equivalent to 80,000 kilowatts) times 11
cents/kilowatt hour is equal to saving $8,800/hour, $211,000/day and $77
million/year. That amount of savings could pay off the potential stranded asset
and also save the rate payer money.
The barrel equivalent of geothermal is $57. Why would we
want to tie ourselves to a $200/barrel and a 20-year contract?
Aina Koa Pono says it will, on its 12,000 acres, produce 24
million gallons of fuel per year. That’s roughly 2,000 gallons of biofuel per acre,
which is four times more productive than palm oil, the only biofuel that can
compete with oil. Yet they plan to do it with an undetermined species of grass.
Ka‘u Sugar Company, in the projected area of Aina Koa Pono,
grew sugar cane and was one of the least productive sugar companies in the
state. Sugar cane is a grass.
AKP is not cost-effective and it doesn’t make sense for us.
We need to concentrate on solutions that better the condition of our people.
If you agree and would like to let the PUC know, this is the time. You can write to the PUC before November 30th at Hawaii.puc@hawaii.gov, and refer to “PUC Doc 2012-0185-Application for biofuel supply contract.”
