Tag Archives: PUC

Biofuel, Lowering Electric Rates, Renewable Energy Sources

Is HECO Seriously Damaging Its Credibility?

January 13, 2013 Richard Ha

A proposed biofuels project that Hawaiian Electric Company (HECO) supports is going through PUC approval process right now.

HECO’s public relations people say that as a result of this new project going through, the average Hawai‘i rate payer’s electricity bill would increase by only about $1 per month.

But let’s look at that in a little more depth. HECO is seeking approval to pay Aina Koa Pono (AKP) $200/barrel for the biofuel it produces on the Big Island at Ka‘ū, and would pass on any extra cost (beyond what oil actually costs at the time) to its rate payers, both on the Big Island and on O‘ahu.

HECO has kept that $200/barrel price secret – they are still keeping it secret – but the Big Island Community Coalition folks figured out the price, and how the “$1/month rate increase” was determined.

Using the Energy Information Agency’s (EIA) Annual Energy Outlook (AEO-2012), one can see that HECO is using the highest price scenario, which projects an oil price close to $180/barrel in 2015. In the AKP discussion, it was said that the price of oil would exceed the actual price projected at the end of the period.

We can see that the line hits $200/barrel in 2035. Since they assume that oil will be $180 in 2015, they can therefore say that the difference (between the actual and projected price) would be very small: Hence, an increase of only perhaps $1/month for the average rate payer.

However, it follows that if the actual price of oil is much lower than $180/barrel, rate payers will be paying the difference between that amount and $200. What if the actual cost of oil in 2015 is $120/barrel? That would cause rates to go up much more than $1/month – especially for high-power users.

I cannot help but think that HECO is damaging its credibility immensely by pushing this project. HECO is spending hundreds of
thousands of dollars on public relations to convince us that it is trying to lower people’s rates – when, in secret, it appears to be doing exactly the opposite.

By the way, HECO says the hundreds of thousands of dollars it spends on PR comes from its shareholders. How can rate payers tell when HECO is speaking on behalf of its shareholders, and when it’s speaking on behalf of its customers?

This Aina Koa Pono project needs to be rejected because it will make our electricity rates rise. Rising electricity rates act like a giant regressive tax, because as folks who are able to leave get off the grid, those who cannot afford to are left to pay for the grid.

This results in farmers and other business folks having higher operating costs. For everyone else, it takes away discretionary income. And we know that two-thirds of our economy is made up of consumer spending.

There are also problems with the project itself. Fuel has never actually been produced using the process and feedstock that Aina Koa Pono proposes. AKP does not know what it is going to grow. So far, the feedstock it is testing experimentally is white pine. The Micro Dee technology that AKP wants to use is still experimental.

There is also a risk that this process might use more energy than it generates. Generating electricity is generally about boiling water and making steam that turns a turbine. It is cheapest to burn the stuff, boil water and make steam.

But Aina Koa Pono’s proposed process is extremely energy-intensive and expensive: It would make electricity to make microwaves to vaporize the cellulose to get the liquid and then take the pyrolysis oil, refine it to make it burnable, and then haul it down to Keahole in tanker trucks to make steam. Why should the rate payer pay for all that?

Cellulosic biofuels are not yet a cost-effective technology. On the mainland, in the middle of last year, the Environmental Protection Agency drastically decreased its 2011 estimate for cellulosic biofuel from 250 million gallons to a paltry 6 million gallons.

In 2010, cellulosic biofuel companies on the mainland needed to buy their feedstock for $45/ton. But because farmers were earning $100/ton for hay, the biofuel firms received a $45/ton subsidy.

I asked how much AKP expected to pay for feedstock, and the AECOM Technology Corporation consultant said between $55 and $65/ton. The problem there is that Hawai‘i farmers have been earning $200/ton for hay for 10 years now.

There is an agricultural production risk, as well. Palm oil is the only industrial-scale biofuel that can compete with petroleum oil. AKP has 12,000 acres and it says it will produce 18 million gallons of biofuel annually, and another 6 million gallons of drop-in diesel. So it will produce 24 million gallons using 12,000 acres. That is 2,000 gallons per acre, and that is four times the production of palm oil. More likely they would need at least four times as much land, or 48,000 acres. But where?

Consider too that Ka‘ū Sugar relied on natural rainfall, and it was one of the least productive of the sugar companies. There is a drought right now. And at 22 degrees N latitude, the area has less sun energy than the palm oil producers located on the equator.

According to Energy Expert Robert Hirsch, in his book The Impending World Energy Mess, the best model for biofuel production is a circular one, where processing is done in the
center of a field (which does not exceed a radius of 50 miles) consisting of flat land and deep fertile soil with irrigation and lots of sun energy. This situation exists in Central Maui, where Hawaiian Commercial & Sugar Company (HC&S) is located. It explains exactly why HC&S is the sole surviving Hawai‘i sugar plantation.

To compete heads up in the world market would require the best possible combination of production factors. These are not them.

It’s also important to consider that locking ourselves into a 20-year contract now would preclude lower cost alternatives. Geothermal, for example, is the equivalent of oil at $57/barrel. Ocean thermal has the possibility of being significantly lower in price than $200/barrel oil. LNG is on the radar and so is biomass gasification. Who knows what else would come up in 20 years?

Paul Brewbaker and Carl Bonham, both highly respected Council of Revenue members, have said, very emphatically and for a while now, that low energy cost is critical. We should listen to them.

The International Monetary Fund team modeled different oil supply scenarios and did a presentation at the Association for the Study of Peak Oil (ASPO) conference a month and a half ago. They could not model a constant $200/barrel oil. Those would be uncharted waters; and ones, by the way, that would devastate Hawai‘i’s tourist industry. Why should we start paying $200/barrel for oil in 2015 if we don’t have to?

Five people from Hawai‘i attended this year’s ASPO conference. Notably, Kamehameha Schools sent two high-level people. Next year, Hawai‘i should send 20 people to learn what’s happening with oil prices and energy.

In the meantime, the amount of risk involved in the AKP biofuels proposal is just far too great. In the investment world, reward is generally commensurate with risk. Except for protection from $200/barrel oil in later years, the AKP project would provide little reward for all the risk we rate payers would assume.

This is a very, very bad deal for consumers.

Big Island electricity rates have been 25 percent higher than O‘ahu’s for as long as anyone can remember. This probably adds to the reason why the Big Island has the lowest median family income in the state, as well as the social ills that go with it. We need lower rates, not higher rates!

Although this is not an official Big Island Community Coalition (BICC) communication, I would like to point out that the BICC has been very instrumental in getting lots of people to stand up and say, “Enough is enough.”

The BICC is a bare-bones, grass roots citizen group with some of the most recognizable names on the Big Island on its steering committee: Dave DeLuz Jr., John E K Dill, Rockne Freitas, Michelle Galimba, Richard Ha, Wallace Ishibashi Sr., Ku‘ulei Kealoha Cooper, D. Noelani Kalipi, Ka‘iu Kimura, Robert Lindsey, H M Monty Richards, Marcia Sakai, Kumu Lehua Veincent and William Walter.

Biofuel, Lowering Electric Rates

Line In The Sand

December 31, 2012 Richard Ha

Richard Ha writes:

The Hawaii Tribune-Herald recently had a front page article
titled HELCO Rate Hike Request Blasted.

By COLIN M. STEWART

Tribune-Herald staff writer

A review of testimony submitted last month to the state Public Utilities Commission reveals overwhelming opposition to proposals by Hawaii Electric Light Co. to increase its electricity rates next year.

…Ono said that Big Isle opposition to the HELCO proposals had been some of the strongest that he has seen.

Big Island folks stood up and said, “Enough is enough!” and the Consumer Advocate noticed.

Last time around, the Consumer Advocate supported the HECO/Aina Koa Pono (AKP) biofuel proposal. But based on the great number of written and oral testimony and the consumer advocate’s letter to HECO/AKP asking for explanation on numerous points—which everyone knows they cannot answer—it does not appear that the Consumer Advocate will be on HECO/AKP’s side this time.

The article doesn’t mention how incredulous people were to find out the HECO/AKP proposal would pay $200 per barrel for biofuel and pass the cost on to rate payers. HECO said they would not say how much they would pay, for “proprietary reasons.” Worse, because HECO assumed a very high oil price, HECO’s PR people made it sound like rate payers would only pay $1 per month. They should have been more evenhanded.

On top of all that, television commercials say that HECO has increased geothermal 25 percent, as if it’s a big deal. Going from 30MW to 38MW is a tiny amount. Spending hundreds of thousands of dollars to say these sorts of things does not help HECO’s credibility.

There could be a PUC decision by late spring or early summer. If we are successful in opposing this, it will demonstrate that the public is not powerless and by following the process, people really can make change. We have drawn a line in the sand. Enough is indeed enough! No more electricity rate hikes!

Instead of doom and gloom, dare we dream of a better life for future generations?

Big Island, Biofuel, Community, Lowering Electric Rates, Renewable Energy Sources

A Modern Day ‘Avoided Cost’ Contract. What?!

November 30, 2012 Richard Ha

Richard Ha writes:

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.

Today is the last day the PUC is accepting testimony re: the proposed Aina Koa Pono biofuels project and HELCO 4. percent rate increase. Email your thoughts today to hawaii.puc@hawaii.gov.

Click to read Jim Kennedy’s letter.

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Community, Government, Lowering Electric Rates

Bill Walter Tells PUC No to 4.2% HELCO Increase

November 29, 2012 Richard Ha

Richard Ha writes:

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.

Thank you for your consideration.

Bill Walter

Big Island, Biofuel, Community, Lowering Electric Rates, Renewable Energy Sources

Graphic Opposition to Aina Koa Pono & 4.2% HELCO Rate Increase

November 29, 2012 Richard Ha

Richard Ha writes:

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.

And do you know what the real kicker is? look at the following graph, that shows the price per barrel of crude oil (WTI) between January 2010 and November 2012 (source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D).

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.

Sincerely,

Rodrigo F.V. Romo, Ch.E., MBA, LEED AP

VP Engineering

Zeta Corporation

Big Island, Biofuel, Community, Lowering Electric Rates, Renewable Energy Sources

How Much HECO Is Spending On Those Ads, & More PUC Testimony

November 29, 2012 Richard Ha

Richard Ha writes:

You’ve probably seen the slick newspaper and TV ads. Hawaii Electric Company (HECO) has spent more than half a million dollars recently to convince us they are trying their hardest to do the right thing. The company is very good at public relations.

For example, the ads say HECO has increased geothermal energy on the Big Island by 25 percent. That sounds wonderful – but that is from a base of only 30 MW. It also says that Aina Koa Pono will only result in $1 per month difference to a typical rate payer.

The big picture is that HECO has resisted closing down its oil-fired plants for years. But now, people are saying enough is enough.

Here is another concerned community member’s testimony against Aina Koa Pono and the proposed 4.2 percent rate increase. Send yours to hawaii.puc@hawaii.gov by tomorrow.

To: ‘Hawaii.PUC@hawaii.gov’
Subject: Dockets Docket # 2012-0185 & 2012-0099

Aloha Chair Morita and commissioners:

I am strongly against the AKP biofuel supply contract and the increase in the Helco electricity rates.

I have lived here on the Big Island in Puna, close to Pahoa for the last 14 years and am the owner of a bed & breakfast operation in Leilani Estates. I have a family with two children and two acres of property. If any of the two dockets go through it will increase the cost of doing business for me and infringe on the viability of my operation. The nature of my business requires for electricity to be available to our guests and there are many times, when I cannot control the use of it, because guests staying at my B&B may not be as conscientious in preserving energy as I am: fans, lights, radios or TVs are left on even though the visitors are not in their rooms. In order to cover additional operational cost my only option would be to increase our B&B rates, however, with the current economy this will result in a decrease of bookings, as people traveling always look for bargains and are not willing to pay higher accommodation rates, if they can get a “beat-the-price” online offer for some of the hotels as package deal with much better conditions.

On the Big Island, electricity rates have been 25 percent higher than Oahu’s rate for as long as people can remember. It has contributed to the Big Island having one of the lowest median family incomes in the state and the attendant social problems that come with a struggling economy. As a family this affects our children and the way we are able to give back into the economy and our communities.

Rising electricity rates act like a regressive tax – people at the bottom of the economic ladder suffer the most. But it is worse; as electricity prices rise, folks that can afford to leave the grid will do so, leaving the folks unable to leave to assume more of the grid infrastructure cost. It is a catch 22. For me with my business depending on consistent electricity supply, it would be impossible to leave the grid and I would be directly impacted by the increased rates and future consumer decisions.

1. Aina Koa Pono Biofuel Project – Docket 2012-0185: Rate payers will subsidize the difference between the actual oil price and the $200 that AKP will be guaranteed for 20 years. It is more than possible that actual oil prices would be substantially below $200 for the whole contract period. That will result in a heavy subsidy that rate payers must bear. The $200 per barrel rate is much too high. And the cost differential that is anticipated to be passed through to the rate payer is unconscionable. The PUC should not approve as just and reasonable that the utility should be allowed to establish a Biofuel Surcharge provision that will allow the pass through of the cost differential to the consumer as well as the actual cost pass through itself.

2. HELCO Rate Increase – Docket 2012-0099: HELCO states in its full page newspaper advertisement that only 3% of its revenue goes to profits. In 2011 HELCO reported $138.2 million in net earnings. Most small businesses in Hawaii do not have a 3% profit margin, most net earnings are much lower and that includes my Bed & Breakfast business. Increased electricity rates would narrow this margin even more. I am entirely opposed to an increase in electricity rates. As a business owner it is HELCO’s responsibility to keep the grid in operating condition. This is not the responsibility of the end users nor should we be charged for it. It is a crucial part of the operating expenses and investments in the future, that a business has to strategically make. It is the same for my business, if I let my rooms fall into disrepair or do not invest in new mattresses every few years, people will stop coming. It is in my best interest to make these investments as I am wanting to stay in business. It is the same for a utility company. Not all investments can be directly compensated by increased rates. The market and consumers will only bare so much – and as consumers, we are saying – no more! Profits will go up and down, depending on what investments have to be made – and that is true for all businesses. But as a business owner we all know that these investments are long term and also mean decreases in the company’s corporate taxes. Also, how much do you think the HELCO advertising campaign costs? Without knowing exact figures I am sure it is in the millions. As end consumers, we are paying for that, too! What a waste of good money…

Petra Wiesenbauer

Big Island, Biofuel, Renewable Energy Sources

Another Testimony Opposing Aina Koa Pono

November 28, 2012 Richard Ha 1 Comment

Richard Ha writes:

Here’s another testimony opposing the Aina Koa Pono biofuel project. This one is from Bill Walter.

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.

Bill Walter

Legend of the Horse That Was Really a Unicorn

The Big ‘Aina Koa Pono’ Risk

What if Aina Koa Pono’s Projections Are Wrong?

It’s the Rubbah Slippah Revolution

Biofuel, Renewable Energy Sources

NO to AKP and a 4.2% Rate Hike

November 28, 2012 Richard Ha

Richard Ha writes:

We have until Friday (November 30, 2012) to voice opposition to the Aina Koa Pono biofuel project and the 4.2 percent rate hike.

You can make a difference by submitting testimony to hawaii.puc@hawaii.gov before this Friday.

Wally Andrade is taking charge of his destiny:

Subject: CC: PUC Docket #2012-0185; Application for approval of biofuel supply contract with Aina Koa Pono

Chair Morita and commissioners:

I am very much against the approval of the Aina Koa Pono project and the current biofuel agreement with HELCO. Please do not tie us to a 20 year contact @ $200/barrel. The AKP microwave technology is not proven on this scale, they have not tested their feedstock, their projections are not rational. What’s the true EROI?

We are depending on you to drive the utility to focus on ways to lower the rates and stop acting as a regulated monopoly with loyalties to their shareholders and not the customers.

We have an abundant low cost geothermal resource on this island that would serve to lower the rates, spur economic growth and provide security for the people. Drive Helco to this resource.

Sincerely,

Walter Andrade
Hamakua Coast

Big Island, Biofuel, Lowering Electric Rates, Peak Oil, Renewable Energy Sources

Speak Up By Friday & Make an Important Difference

November 26, 2012 Richard Ha 1 Comment

Richard Ha writes:

Regarding the Aina Koa Pono (AKP) biofuel project, and despite its full-page newspaper ads, Hawaii Electric Light Company (HECO) has clearly shown that it does not have the public interest at heart.

The utility kept secret how much AKP would be paid – $200 per barrel – and manipulated that information to estimate that the average rate payer would pay $1 per month and make us feel like this was a small thing.

This is grossly unfair. There are many different ways HECO could have informed the public without compromising proprietary information. Instead, behind our backs, it was applying to pass through the cost of $200 per barrel oil.

It’s unconscionable to do this to the “rubbah slippah” folks.

Now, week after week, HECO continues to run its full page newspaper ads to wash our brains and tell us how much it is trying to lower our rates. Hmmmm.

This Friday, November 30, 2012, is the deadline to submit testimony to the PUC opposing the Aina Koa Pono project.

Email your letter to: hawaii.puc@hawaii.gov and reference this in the subject line: PUC Docket #2012-0185; Application for approval of biofuel supply contract with Aina Koa Pono.

Here’s the testimony I sent:

To: PUC <hawaii.puc@hawaii.gov>
Subject: PUC Docket #2012-0185; Application for approval of biofuel supply contract with Aina Koa Pono

Aloha Chair Morita and commissioners:

I am strongly against the AKP biofuel supply contract.

I am president of Hamakua Springs Country Farms, which is a family farming operation. We farm 600 fee simple acres of bananas and tomatoes at Pepe‘ekeo on the Big Island. We have more than 35 years of farming experience. I am a committee member of the Hawaii Clean Energy Steering Committee. I was co-chair of the Geothermal Working Group. I have attended four Association for the Study of Peak Oil conferences, so I have a fair understanding of energy issues.

My testimony relates to the effect that the AKP biofuel contract will have on my workers and on my farm, as well as on food security in general and the Big Island’s economy in particular.

The AKP/HECO fueling arrangement contemplates AKP being paid approximately $200 per barrel of biofuel. The $200 per barrel payment to AKP will begin in 2015, when AKP is anticipated to deliver the specified quality fuel. The contract will then last for 20 years. HECO points out that the rate subsidy will only begin when AKP delivers fuel, as if to say that there will be minimum economic effect on rate payers. Nothing could be further from the truth.

The AKP fuel purchase contract of 20 years precludes utilizing potentially lower cost alternatives. Geothermal, for example, is 11 cents per kilowatt hour less than oil for generating electricity. If geothermal were used instead of oil at the 60 MW Keahole plant, it would save $58 million annually compared to oil at today’s price. And oil today is nearly half the cost of AKP’s fuel oil at $200 per barrel.

It appears that the AKP contract tracks the AEO 2012 high price scenario instead of the reference case scenario. During the last few years, knowledgeable commentators such as Jeff Rubin point out that rising demand and rising oil prices contains the seed of its own destruction. The last four recessions, dating back to 1970, indicate that oil price spikes cause recessions. And recessions cause oil prices to fall back. Global economic growth is grinding to a halt when oil is close to $100 per barrel. So it is more prudent to follow the reference case of the EIA’s AEO 2012 oil price projection – instead of the high rate case oil price path that HECO chose.

The PUC should not approve as just and reasonable that the utility should be allowed to establish a Biofuel Surcharge provision that will allow the pass through of the cost differential to the consumer as well as the actual cost pass through itself.

Rate payers will subsidize the difference between the actual oil price and the $200 that AKP will be guaranteed for 20 years. It is more than possible that actual oil prices would be substantially below $200 for the whole contract period. That will result in a heavy subsidy that rate payers must bear. The $200 per barrel rate is much too high. And the cost differential that is anticipated to be passed through to the rate payer is unconscionable.

Rising electricity rates act like a regressive tax – the folks on the lowest rungs of the economic ladder suffer the most. But it is worse; as electricity prices rise, folks that can afford to leave the grid will do so, leaving the folks unable to leave to assume more of the grid infrastructure cost.

Oil price has quadrupled in the last ten years. People and businesses have made necessary adjustments, but there is just no more to cut. Farmers have cut back on employee benefits, and they have cut back on capital improvements to survive. But this is false economy; sooner or later, maintenance foregone will catch up. Farmers are especially vulnerable because they are price takers rather than price makers. It is our food security that is at stake.

Hawaiian farmers’ and food manufacturers’ main competition is U.S. mainland producers. Oil costs make up less than 2 percent of the electricity costs on the mainland. Oil is more than 70 percent of the cost of electricity in Hawa‘ii. Any mainland food product that has substantial cheap electricity costs imbedded in it becomes relatively more competitive to Hawai‘i products as oil prices rise. AKP’s price subsidy will make Hawai‘i food producers even less competitive to their mainland counterparts. Allowing cost differential pass through will threaten our food security.

Higher electricity costs from the AKP project will affect fresh food costs. Farmers, wholesalers and customers of locally gown food all pay for the electricity that it takes to maintain the “cold chain.” That raises food cost and takes away discretionary income from consumers. Consumer spending makes up two thirds of our economy. Allowing cost differential pass through threatens our economy.

Rising electricity rates act like a regressive tax – the folks on the lowest rungs of the economic ladder suffer the most. But it is worse: As electricity prices rise, folks that can afford to leave the grid will do so. This leaves the folks unable to leave to assume more of the grid infrastructure cost. These are the very people who are most affected by rising electricity rates. Allowing cost differential pass through is not in the public interest.

In this particular project, HECO has shown that it does not have the public interest at heart. Worse, it kept secret the $200 per barrel amount that AKP would be paid and then manipulated that information to come up with an estimate of $1 per month for the average rate payer. That was grossly unfair. Passing on the high biofuel cost to the rubbah slippah folks while making it seem that there would hardly be an effect is unconscionable. There were many different ways they could have informed the public without compromising proprietary information. Instead they chose this way. It speaks for itself.

Richard Ha

Biofuel, Peak Oil, Renewable Energy Sources

Legend of the Horse That Was Really a Unicorn

November 18, 2012 Richard Ha

It was a hard-working
horse, they said, and it would not cost us much money.

All our problems
would be solved, they insisted, if we just had this horse.

And from the back
end, it did indeed look like a horse.

They said we couldn’t
look at the horse’s face, though, for competitive reasons.

It wouldn’t be fair
to the other horses, they said.

We searched and
searched through the scrolls,

and we realized that
all was not what it seemed.

Their “horse,”
it turned out, was actually a unicorn.

One of their friends
spoke up.

“What if we gave you
the uni….er, I mean the horse, for free?

What if we made
people from the land of O‘ahu pay for the horse?”

We said, “No. The
unicorn spends more time eating than working.”

Someone shouted, from
the back of the great hall,

“Don’t believe them!
They want to take over the kingdom!”

We replied, “No! We
just don’t want to take care of a unicorn.

A unicorn does not
help our people. It eats too much and takes up too much land.

We worry about having
enough food for the most defenseless among us.”

And that, Boys and Girls, was the start of the Rubbah Slippah
Revolution.

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.”