Blame it on the oil

West Hawaii Today - January 30, 2013
Erin Miller

Hawaiian Electric Co. officials were hesitant Tuesday to pick one path as the sole avenue to reduce Hawaii’s high energy costs.

HECO Executive Vice President Robbie Alm told state senators and representatives the state’s electricity providers have to reduce the amount of oil-fueled energy, but also need to explore the possibilities of an interisland cable transferring power from one island to another, bringing liquefied natural gas in large quantities to the state and increasing the renewable energy portfolio.

“You’ve got to do it all,” Alm said during a Senate information hearing that was streamed online. “The cable could be stopped. The environmental community is objecting to LNG. It’s not possible for Hawaii to pick a single route and put all our eggs in one basket. It ends up not working, then oil keeps blowing us up.”

Senators, particularly Commerce and Consumer Protection Chairwoman Rosalyn Baker, D-Maui, and Sen. Malama Solomon, D-North Hawaii, took Alm, Hawaii Electric Light Co. President Jay Ignacio and Maui Electric Co. Sharon Suzuki, to task, particularly for what they perceived to be a lack of focus on consumers.

“Customers using candles at night?” Solomon said, referring to comments from Public Utilities Commissioner Lorraine Akiba earlier in the hearing. “You’ve got to excuse me for sounding angry. I’ve been chasing this for 30 years. Renewables can reduce the cost, the cost can be passed on to the consumer. That’s why I’m saying you’ve all got to take a class in basic economics. It’s not telling people, hey, cut back, cut back. We go to renewables to save costs and pass those on.”
Alm said it comes back to reducing the amount of oil burned.

“I’m looking for something more immediate than that,” Baker said. “Be more customer-focused.”

Gov. Neil Abercrombie on Monday evening announced the state and HECO reached an agreement that resulted in HECO withdrawing a 4.2 percent HELCO rate increase request.

Solomon and Ignacio got into a back-and-forth exchange on HELCO’s electricity prices. Solomon told Ignacio customers have no confidence in the utility anymore. Customers cutting back on energy consumption is one way state residents have protested against rising electricity prices, Solomon added.

“I truly want you to understand that you and I are in total agreement with trying to drive down the cost of energy on the Big Island,” Ignacio said. “We are doing the things that you desire us to do.”

Part of the problem, energy officials said, is that older contracts with independent, renewable energy providers are based on avoided costs. That ties the price HELCO pays for some wind energy, for example, to the price HELCO would be paying to generate that same amount of energy with oil.

Ignacio, at a Hawaii County Council meeting last year, said one Puna Geothermal Venture contract that included an avoided cost provision did not expire until 2027. HELCO did not respond to a request seeking information about other contracts.

The less energy customers use, the more the utilities have to charge to cover their costs, officials said, adding about 70 percent of energy costs here are tied to the cost of oil. Public Utilities Commission Chairwoman Hermina Morita said the state added 55 megawatts of solar power between 2002 and 2011. Solar systems added last year added 50 more megawatts, she said.

“Both the effectiveness of efficiency programs and the high cost of electricity itself are driving up costs,” Morita said.

Rep. Denny Coffman, whose new district spans from Kailua-Kona through Ka‘u, questioned Alm on what kind of incentives the Legislature could create to entice Hawaiian Electric Industries to move away from oil-based power more quickly. Coffman suggested decreasing the amount of money HEI companies could charge customers to recover the cost of oil.

Alm balked at the idea.

“That would simply bankrupt us,” Alm said. “That’s what California did. You don’t cover the utilities’ cost for fuel. Our fuel purchase is 10 times our net income. You don’t cover that, we’re not here.”

Sen. Mike Gabbard, D-Oahu, quoted a December article in Forbes magazine, which noted Hawaiian Electric Industries’ “annualized payout rate of $1.24 per share reflects an attractive dividend yield of 4.9 percent, substantially higher than the industry average of 2.2 percent.” Gabbard asked Alm about the article, and the balance between returns for investors and service to customers.

“The issue is, what’s the proper amount of income at the end?” Alm said. “The net income is the net income. What you then spend it on, dividends, acquiring other companies, growing your stock, whatever you do, is up to you. At 10 percent, we’re in the national average as to what the income is the company receives.”

Gabbard and Rep. Angus McKelvey, D-Maui, also questioned whether Hawaii would be able to bring in enough liquid natural gas to Hawaii, because the United States hasn’t built a properly equipped ship in decades. The Jones Act requires ships bearing cargo to Hawaii be built in the U.S. and based in the U.S.
“There are ways the Jones Act will not prevent us from importing LNG to Hawaii,” Alm said.

Why, Gabbard asked, would providers want to sell the fuel in Hawaii, when ships could skip the state and get paid three times as much in Asian markets?

“Because Hawaii is willing to be a steady importer for a long time,” Alm said. “We’re not a bad market. … Some of it is clearly related to pleasing the president’s home state. We’ll take advantage of that.”