Isn’t it time to unplug HECO’s monopoly?
by Matthew Kain | Mar 21, 2012
We all know to unplug energy vampires, those appliances that suck power from sockets even when they’re turned off. But what about the utility that drains our pockets? In late 2011, Oahu electric rates reached a record high of 34.6 cents per kilowatt hour (kWh), nearly triple the mainland average of 11.88 cents. Hawaii is surrounded by green energy potential, so when will we start using it? On Feb. 24, a few miles northeast of Haleiwa, politicians from all levels of government and representatives from the Boston-based corporation First Wind LLC broke ground on the 69-megawatt Kawailoa wind farm, which will become Hawaii’s largest, producing enough electricity to power the equivalent of 14,500 homes by the end of 2012. The power generated will be sold to HECO at the rate of only 22.9 cents per kilowatt hour and, since everyone on Oahu pays the same rate, the savings will be passed directly on to all. Which raises the question: Why is HECO taking so long to get other large-producing projects on the grid?
“Every month I dread that electric bill,” says 66-year-old Sam DiMartino, who says he has done just about everything he can to cut down his electrical costs. A 25-year resident of ‘Ewa Beach, DiMartino is one of a growing number of working class residents who finds it harder and harder to make ends meet as the costs of electricity in Hawaii continue to rise. He checks his meter every day. He’s purchased energy efficient appliances. He hasn’t used his air conditioner in more than five years.
“We no longer use the dryer,” DiMartino says, pulling on the collar of his black t-shirt–dried on his clothesline–adding, “Our clothes are stiff as hell.” With his electric bill ranging anywhere from $250 to $400 a month on his three-bedroom townhouse, DiMartino worries about rates getting higher. “I don’t know what to cut out next,” he says with a hopeless look in his eyes.
Tied to oil
HECO’s 100-year love affair with its fossil-fuel-fired generators (HECO switched from coal to oil as a fuel source in 1906) is the reason why our rates have soared in recent years and will continue to soar as long as things remain the same. “We all know that the price of oil has just gone up tremendously over the last year. The most significant thing that is affecting customer bills is the price of oil,” HECO spokesman Darren Pai confirms.
It’s also the type of oil. “One of the main issues is that we’re getting low-sulfur fuel oil from Asia, which has been trading at higher prices than what is sold on the mainland,”
“What we hear from HECO is that the increase of electricity costs is caused by rising oil prices,” says Sen. Mike Gabbard, chair of the Senate Committee on Energy and Environment. Much higher prices actually. According to HECO’s inventory prices, low-sulfur fuel oil–or sweet crude as it is often called–prices have soared to and remained at about $130 per barrel since the latter half of 2011, while conventional crude remained just under $100 per barrel, according to West Texas Intermediate pricing. Asia is one of the only places Hawaii can get the low-sulfur crude that HECO needs in order to keep its generators running. The massive tankers that bring oil here travel one of the world’s longest sea routes and risk a plethora of human and natural disasters before making it to Hawaii. If anything were to disrupt our steady supply, Hawaii could have an energy crisis in a matter of weeks.
“But, of course, we’re also seeing that HEI [HECO’s parent company, Hawaiian Electric Industries]’s profits were up 39 percent in the [fiscal year’s] fourth quarter,” continues Gabbard. “This concerns me and everybody else out there that’s watching HECO’s ads. The sad fact is that we are dependent on oil and the price of oil is so expensive and volatile.”
The ads Gabbard refers to feature HECO Executive Vice President Robbie Alm and spokeswoman Jade Moon discussing how oil is the reason for our rising energy bills and how we have to develop local, clean energy in addition to reducing our usage. However, even though everyone seems to agree on the state’s petroleum addiction, HECO and its critics stand divided about how to “green” the state’s energy portfolio.
Holding up the show?
“I think the basic thing that we need to do is change the [HECO and HEI] corporate structure,” says Rep. Cynthia Thielen, ranking member of the House Committee on Energy and Environmental Protection (EEP). “You have a utility that is the only show in town providing the power to the residences and business, and they’re beholden to their shareholders to make a profit.”
And the House EEP Committee isn’t just talking the talk. House Bill 2400–introduced by EEP Chairman Denny Coffman and heard earlier this session–would have done exactly what Thielen suggests, which would be to eliminate HECO’s monopoly as an electricity provider. “Find a way that Hawaiian Electric can turn into being [just] the distributor, but then open the power generation–on a competitive basis–to different provider companies that want to come to Hawaii to provide that power,” Thielen says.
HB2400 was deferred almost immediately after being heard, with testimony against it from both
the Public Utilities Commission (PUC) represented by commission chair Hermina Morita, and Consumer Advocate Jeffrey Ono. Hawaiian Electric, of course, concurred.
This is a dilemma not only for ratepayers, but for companies wanting to provide green energy to the grid through power purchase agreements, as well. When HECO signs a power purchase agreement, the company providing the power pays for the renewable energy infrastructure out of their own pocket, as in the case of First Wind’s Kawailoa and Kahuku wind projects. Ratepayers don’t pay a dime for that energy infrastructure, while we do pay for the upkeep of HECO’s oil-fired facilities. “We don’t give [First Wind] a penny until they begin to send electricity through the wires. And then we pay them according to the amount of electricity they send,” says HECO Spokesman Peter Rosegg. “So First Wind has all the risk of the project, it doesn’t show up on our books or in any way affect Hawaiian Electric’s finances. That’s true of all independent power producers and independent fuel producers. The ratepayer has no risk involved.”
The more this happens, the less we need the current, oil-fired electrical infrastructure. So why would HECO want to keep things the way they are? “It’s a no-brainer for HECO to depend upon oil because as the price of oil goes up, they, by law, are allowed to pass 100 percent of that increase in cost to the consumer,” Thielen says. “Right now it’s in HECO’s interest to prevent the broader use of renewable energy, because the ratepayer pays a higher utility bill without renewables,” she adds.
Who’s stopping whom?
HECO Executive Vice President Robbie Alm–the man in the above-mentioned commercials–disagrees with the notion that HECO is not prioritizing renewables. He also opposes bifurcation of the electric utility business in Hawaii.
“That doesn’t buy you an ounce of clean energy,” says Alm. “You’ll have to turn around the next day and do exactly what we’re doing, which is put out bids, sign contracts, send them to the PUC, get approval for them and then have neighbors hopefully welcome the construction of the plants and projects. Only that last [thing] actually produces clean energy.”
According to Alm, the resistance to getting more renewables on the grid is coming from people who disagree with the individual proposed projects, not from HECO. They may include environmentalists who find flaws in the project designs or residents of communities in which projects are slated to be built.
“The wind farms on Molokai and Lanai are being fought very heavily; there are people trying to fight the [interisland] cable; there are still opponents to geothermal,” says Alm. “At some point we need to figure out how we’re going to say yes to some of the larger-scale projects and get going. . . . Because every major project, every place, is being fought–every one.”
Foes of HECO, including Henry Curtis, executive director of Life of the Land, a Hawaii-based environmental and political action group, maintain that HECO is beating around the bush. “The only thing they understand is liquid fuel, and they fear that renewables can displace their fossil fuel power plants,” says Curtis. “Therefore, they have to talk the talk about how much they care; and, on the other hand, resist at every level against any move towards renewables.”
But even though 100 percent of the costs associated with oil are passed through to ratepayers, Alm maintains that HECO has no incentive to resist, noting that HECO’s overhead of “a couple billion dollars,” which is mostly for oil, sharply outweighs the company’s net profits. However, according to HECO’s Security Exchange Commission 10-K filings, net profits were $100 million in 2011, the highest in 20 years.
“We’re not slowing this down,” says Alm. “We’re putting out a bid for 200 megawatts of renewable power this year that was to replace the project on Molokai that the PUC said they wouldn’t accept as is and asked us to re-bid. So what we’ll get out of that, we’ll see.” One main reason for neighbor island opposition to hosting wind and geothermal projects, as well as to the interisland cable, is that residents who already pay more per kilowatt hour would like to see O’ahu cut some of its consumption before using their land to feed its outsize demand.
Reducing the need
A large part of the Hawaii Clean Energy Initiative–a memorandum of understanding between the
state of Hawaii and the US Department of Energy–focuses on efficiency. Hawaii’s goal as a state is to use 30 percent less electricity by 2030.
One common gripe about the use of photovoltaic panels (PVs) is that each neighborhood on Oahu is capped at 15 percent PV generation, but HECO’s Peter Rosegg dispels this as myth. “There is no limit or cap,” he says. When the combined capacity of PVs on a single electrical circuit reaches 15 percent, a technical study on the circuit’s reliability may (or may not) need to be done–at the customer’s expense. This is the bad news. The good news though, according to Rosegg, is that only 49 out of Oahu’s 465 circuits are at, or near, that capacity. These same standards are used in California and many other places. “It’s a reliability checkpoint,” says Rosegg.
The PUC has deemed HECO to be solely in charge of system reliability so it’s in everyone’s best interest for them to be wary of circuit vulnerability risks. However, HECO may have to share the responsibility in the near future.
Who’s in charge?
Established in 1913, the PUC is the watchdog-liaison between the ratepaying public and HECO. Each appointed by the governor, the PUC is made up of three commissioners–currently Hermina Morita, Jon Cole and Michael Champley–who serve six-year terms upon approval of the State Senate. Morita is the current chair. Recently appointed Champley is currently awaiting approval of the senate, and Cole’s term expires in June of 2012, when he will be replaced by attorney Lorraine Akiba. The Weekly made attempts to speak with the PUC while gathering information for this piece but was unable to solicit any comments.
“The PUC has had a very cozy relationship with the utility for 99 years,” says Curtis of Life of the Land. “I don’t fully trust them to make the right decisions. I would rather be [reading] the dockets [and] verifying the analysis that the PUC and the consumer advocate do are correct.” Curtis has reservations about the lack of transparency the PUC has with the public.
According to Curtis, commissioners of the PUC file annual financial disclosure statements, but the governor is the only one who has access to that information. “HECO could be wining and dining the PUC on a regular basis,” he says. “I’m not saying they are, but they could be, and you would have absolutely no way of knowing that.”
A bill quickly making its way through this year’s legislative session–SB2787–seeks to give the PUC more power over the grid by allowing them to develop, adopt and enforce reliability standards. Due to the intermittent nature of most renewable sources, HECO is currently the only authority in charge of making sure that the electrical grid meets reliability standards. An example: If half the island is powered by solar and clouds block the sun for a few days–or even weeks–critics charge that the grid could potentially crash. There are adjustments that need to be made in order to ensure grid reliability, they say. For this reason, HECO cannot simply let every hopeful independent power producer storm the grid at once. But are they intentionally slowing down the process? And will the PUC do any better of a job if SB2728 is signed into law?
Sam DiMartino has written several letters to the PUC expressing his concern with HECO and the state’s energy plight. But, according to DiMartino, the PUC has continually forwarded his letters and calls directly to HECO instead of fielding his questions and concerns directly. “What are they, a referral agency?” asks DiMartino, who also says he doesn’t really trust the PUC. “There’s a need for skepticism,” he adds.
While many projects on the neighbor islands are being contested, the Kawailoa and Kahuku wind farm projects show that Oahu’s opposition to large-scale projects is not all that adversarial. Ratepayer relations with HECO, however, are a different matter.
Rep. Cynthia Thielen of the House Committee on Energy and Environmental Protection
Image: Photo by John Chisholm