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HECO revises its plan to buy biofuel

Customers would be hit with a surcharge, as the green energy is pricier than diesel

By Alan Yonan Jr.

LAST UPDATED: 01:53 a.m. HST, Oct 29, 2012

The public will have the opportunity this week to speak out on a revised plan by Hawaiian Electric Co. to buy locally produced biofuel for power generation after its initial proposal was rejected as being too costly for ratepayers.

HECO and its Hawaiian Electric Light Co. subsidiary on Hawaii island are seeking approval from the Public Utilities Commission to buy 16 million gallons of liquid biofuel fuel per year for 20 years from Aina Koa Pono LLC at a fixed price. The biofuel would be used to replace the diesel HELCO burns at its 81-megawatt Kea­hole power plant.

Although HECO officials did not disclose the price of the biofuel, they said the cost would be $125 million less over the life of the contract than Aina Koa Pono originally proposed. The PUC denied that plan in September 2011, saying the contract price was excessive and not in the public interest.

But even at the new, lower price, the biofuel would be more expensive than diesel, requiring the utilities to impose a surcharge on ratepayers to make up the difference.

If spread across ratepayers on Hawaii island and Oahu, the surcharge would be an estimated 84 cents to $1 per month for a typical family using 500 to 600 kilowatt-hours of electricity per month, according to HECO. However, the utilities are projecting that the situation will reverse itself over time as the price of oil rises and the price of biofuel holds steady. That would eventually reduce the relative cost of biofuel-generated electricity, which could potentially save ratepayers $500 million over the life of the fuel contract, according to HECO.

The utility said its projections are based on the assumption that oil will follow the "high price forecast" published by the federal Energy Information Administration in its Annual Energy Outlook. In the 2012 outlook the EIA's high estimate was that oil would reach $200 a barrel by 2035. Its midrange estimate was $145 a barrel, and its low estimate was $62 a barrel. By using the high estimate, HECO was able to achieve a more favorable price comparison for biofuel.


The Public Utilities Commission will hold public hearings on Hawaii island and Oahu this week on whether Hawaii Electric Light Co. and Hawaiian Electric Co. should be allowed to impose a surcharge on ratepayers to cover the cost of buying biofuel for electricity generation.

>> Monday, 6 p.m., Hilo High School Cafeteria, 556 Waianuenue Ave.
>> Tuesday, 6 p.m., Kealakehe High School Cafeteria, 74-5000 Puohulihuli St.
>> Thursday, 6 p.m., Farrington High School Cafeteria, 1564 N. King St.

The proposed biofuel surcharge is a sore point for many Hawaii island residents and businesses given the island's high electricity prices and the fact that HELCO recently filed for a 4.2 percent rate hike, said Wallace Ishi­ba­shi, a member of the Big Island Community Coalition, a group formed in August to push for lower electricity rates on Hawaii island. HELCO residential customers paid 40.4 cents a kilowatt-hour for electricity in October, second only to the 44.9 cents per kilowatt-hour paid on Kauai.

"We oppose any rate increase. Enough is enough," Ishi­ba­shi said. "A lot of people are having to turn off the lights because they can't afford it. When companies have to pay more for electricity, they have to cut workers' pay and benefits," said Ishi­ba­shi, Hawaii island's division director for ILWU local 142.

Ishibashi said members of the Big Island Community Coalition attending a PUC hearing today at Hilo High School plan to wear rubber slippers to symbolize the solidarity of HELCO customers in the face of rising rates. The organization also will pass out 500 buttons that read "No Rate Hike," he said.

PUC hearings also are scheduled for Tuesday in Kona and Thursday in Hono­lulu.

Aina Koa Pono said it plans to spend $450 million to build a biofuel processing facility in Pahala. The operation initially would use invasive plant species, macadamia nut husks and coffee hulls as a feedstock. The company would later grow noninvasive perennial crops such as sweet sorghum and nonseeding Napier grass. Company officials said they plan to use a process called microwave catalytic depolymerization to convert organic material into a liquid fuel.

HECO said biofuel is a significant part of its strategy to reduce the company's reliance on fossil fuels for electricity generation. The utility is required by law to have 40 percent its electricity sales come from renewable sources by 2030.

"Across the islands we have power plants using black liquid fuel — oil — to generate electricity. We have done tests and found that green liquid fuel — biofuel — can be used in those same generators with very small modifications," said Peter Rosegg, a HECO spokes­man. "So we can continue to use the existing power plants — which we have paid millions of dollars to build, maintain and upgrade — as we transition to other renewables," Rosegg said.

One advantage biofuel has over other forms of renewable energy is that it provides firm power, meaning it can be used to back up intermittent energy sources such as wind and solar, he said. Biofuel also can be produced locally and burns cleaner than petroleum-based fuels, Rosegg added.

"We believe biofuels will be cheaper than oil during the lifetime of the contracts we are signing. Also, because we can sign long-term fixed-price contracts for local biofuel, we can avoid some of the volatility in energy prices that are attached to burning oil," he said.

Henry Curtis, executive director of the nonprofit environmental and community action group Life of the Land, said he has numerous concerns about the proposed biofuel plan.

Among other things, HECO did not explain in its PUC filing how the proposed biofuel plant would fit in with other large-scale alternative energy proposals on Hawaii island, including a plan to generate electricity by burning eucalyptus chips and another to expand the capacity of the Puna Geothermal Ventures power plant.

"Right now the Big Island has more generating capacity than they need, and they're talking about adding biomass and biofuel. What are the price points for all these? The ratepayers need to know so they have an idea what they're paying for," Curtis said.

The PUC granted Life of the Land intervenor status in the Aina Koa Pono case, which will give Curtis access to information in the decision-making process that is not available to the general public.

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pridon wrote:
Another rip off of the consumer. Convert plants to LNG or seek contacts for synthetic diesel which will be the wave of the future. Company likely lacks needed permits. Remember the plans for sugar cane ethanol produced locally which we're used to justify the E10 mandate, which reduced your mileage by 10 per cent along with the soaring gas prices. Not a drop was ever manufactured in HI. Fed Gov is paying $25 gal for biofuel for Dep of Defense. No way some local operator is going to build and produce at competitive price. HE never takes any action to reduce the cost of electricity. Oh, by the way, this adds to the high operating costs of rail.
on October 29,2012 | 04:48AM
bender wrote:
I didn't think Aina Koa Pono was in business since their gift from the legislature was turned down. Is Aina Koa Pono even a viable business, or will they know return to the legislature with this contract in their hand asking for free money again.
on October 29,2012 | 05:40AM
BluesBreaker wrote:
Good questions. Also, has their technology been proven at a utility-scale power plant? I don't think so. HELCO should stick with proven technologies. If they are going to add more alternative energy, why not use geothermal. It's been used to generate electricity in Hawaii County for more than 20 years. Rate payers shouldn't foot the bill for experimental projects.
on October 29,2012 | 06:18AM
Papakolea wrote:
Aina Koa Pono will be a very viable business because they'll be able to charge what they want and HELCO will pay it since the PUC will allow HELCO to add a surcharge onto the electric bills. The fuel premium for the local biofuel will be a pass-through cost for HELCO. No skin off their bottom line.
on October 29,2012 | 08:49PM
Maneki_Neko wrote:
Let's see....this company first tried to soak the rate payers for $125 million a year which would have gone into investors' pockets. When caught, they now come back with a new, cheaper plan but....but.....we still do not know what the price will be, only that it will be a) more expensive than alternatives and b) once again all HECO/HELCO customers pay for energy that goes only to Big Island customers.

How incredibly foolish is the PUC to even consider this?

A technology that has never been shown to work on a scale such as proposed. A secret price list consumers cannot see. Opposition by the community about the use of land. Set up so 100% pay for electricity that only a small percentage actually receive. Not mentioned is that a mainland oil company has first dibs on the biofuel anyway.

Life of the Land is right - this is not a good deal for the Big Island, HECO or HELCO customers. Fool us once shame on you, fool us twice, shame on us.

on October 29,2012 | 06:59AM
bender wrote:
Isn't Aina Koa Pono the company that cmae to the legislature last year asking for start up capital. My recollection is that they wanted a large amount of money with no gurantees of repayment. The legislature wisely turned them down. Now they have a contract. Will they return to the legislature with that contract in hand again asking for taxpayer money.
on October 29,2012 | 07:02AM
loquaciousone wrote:
That's biofuel? I was drinking from that bottle last night. Nobody better light a cigarette anywhere near me today.
on October 29,2012 | 07:27AM
jamesching wrote:
HELCO should concentrate on providing electricity from puna's geothermal wells also continue exploring geothermal wells on Hualalai. HECO should continue the biofuels contract with REGI(renewable energy group) and explore the possibility of producing biofuels on Oahu or shipping biofuels from aina koa pono to oahu for power generation
on October 29,2012 | 07:40AM
Maneki_Neko wrote:
Although HECO officials did not disclose the price of the biofuel, they said the cost would be $125 million less over the life of the contract than Aina Koa Pono originally proposed.

So, how much are they trying to soak us for now? I guess there was a miracle that - poof! - allowed Aina Koa to lower its price by $125 million. Maybe we need a another miracle - poof! - to lower it until it is the same or less than current costs for electricity.

on October 29,2012 | 08:39AM
loquaciousone wrote:
I hear HECO is proposing to build giant wind turbines on every house on the North Shore. The purpose is that maybe tourist won't notice those giant ugly windmills above Pupukea.
on October 29,2012 | 09:02AM
Cal65 wrote:
This is probably based on $200/barrel for oil, the high figure projected out a quarter of a century. Looking at the US oil reserves now, this is a highly unlikely projection. This isn't a PUC or HECO problem, it's a political problem with the folks who ignorantly passed the law for Hawaii's Clean Air Initiative. A law passed after global warming had abated.
on October 29,2012 | 10:41PM
hilocal wrote:
Henry Curtis says the Big Island has more generating capacity than it needs. So why does HECO want to add more capacity whose extra cost will be spread to ratepayers on all islands?
on October 29,2012 | 08:47AM
Tony91 wrote:
It is a state and federal mandate that Helco (and others) start using biofuel in lieu of the diesel. AKP is but one outfit trying to capture that artificial business opportunity created by new government regulations. If it is not AKP, it will be another company, likely offering bio fuel at a similar price. The fuel surcharge is going to happen at some point. It is kind of funny to watch everyone get so worked up at AKP and the PUC when they should be worked up at the rules requiring this to happen. Federal and State governments are forcing Helco/Heco and others to start buying bio fuel. Bio Fuel is more expensive than diesel and likely always will be, no matter who the producer is.
on October 29,2012 | 08:51AM
Maneki_Neko wrote:
Maybe Aina Koa Pono should be paid the lowest current price for fuel and then later - when and if - oil prices exceed the cost of biofuel thne Aina Koa can have a price increase too. As it is now, they get a premium on their product because sometime in the future prices of oil may be higher than their prices - that's bass-ackwards.

My view is that alternative energy sources are viable when they cost no more than the energy source they are displacing. This idea that we reward investors upfront for unproven performance is a road to disaster.

on October 29,2012 | 11:25AM
Tony91 wrote:
AKP would be taking on tremendous risk. It is important to note that the utilities are charged nothing if they don't produce any bio fuel. These are fuel purchase agreements not subsidies. The calculation per rate payer is the estimated effect per user if the volume produced meets projections. If AKP only produces 1 gallion of bio-fuel, that is all that Helco would buy. Further more, AKP could also sell bio fuel to other entities at higher prices, they could get up and running and decide not to sell their product to the utilities. No entity, AKP included, could get financing on their deal if they lost money on the front end and made it up later, at some unknown date. They are not getting a premium on their product, the price of bio fuel is more than petroleum. That is the market price. Indeed, our government has required the military to purchase bio fuel for bases at huge premiums to petroluem recently.
on October 29,2012 | 06:43PM
Maneki_Neko wrote:
They are not getting a premium on their product, the price of bio fuel is more than petroleum. That is the market price.

Says who? The prices are secret. The costs of production are secret. All we now is that the last time around, the PUC rejected AKP's plan because it was ripping off Hawaii consumers to the tune of $125 million over term. Now there is some new magical plan which makes fuel cheaper. Talk about pulling a rabbit from the hat. I guess if again rejected, AKP will be back with it's third new and improved offer.

on October 29,2012 | 08:34PM
EINSTEIN1 wrote:
I am continually amused and yet flabbergasted that the PUC would hear testimony that is based on predictions of the oil markets in future years. Once they make a decision based on the premises provided them by the utility company, it is final and binding over many, many years. Everyone should know by now that the US has proven oil reserves greater than Saudi Arabia. It is projected that the US will be energy independent in a few short years. In addition, it has almost limitless supplies of natural gas. With wind and solar energy sure to grow and be providers of electricity in large quantities, how can one possibly say that oil prices are certain to climb and therefore justify another rate increase to support expensive and cost prohibitive bio-fuels. As an Oahu resident, I would strongly object to subsidizing the costs. It is unconscionable, that the state and the utility companies are pursuing an energy strategy not based on facts. It will be so expensive for Hawaii residents that only the rich will be able to afford living here. The poor, those on low and fixed incomes cannot survive in such an environment. The leadership should recognize this and reckon with it. I hope the PUC will strongly question the utility on its assumptions.
on October 29,2012 | 10:31AM
koaangel wrote:
What about geothermal? Isn't the Big Island anxious to develop its abundant resources which should provide firm power to its residents for years to come without any abatement? Once developed, there will no longer be any fuel costs. The PUC should definitely raise this issue during its deliberations. It would seem to be the most preferable resource to exploit for the people of the Big Island.
on October 29,2012 | 10:39AM
saywhatyouthink wrote:
Not likely... Heco buys the legislature with campaign money, the legislature controls the PUC and the PUC is run by Hermina Morita, who is a former long time legislator. Coincidence...hmmmmm
on October 29,2012 | 11:43PM
tiki886 wrote:
[The utility said its projections are based on the assumption that oil will follow the "high price forecast" published by the federal Energy Information Administration in its Annual Energy Outlook. In the 2012 outlook the EIA's high estimate was that oil would reach $200 a barrel by 2035.]

When anyone produces a business plan involving cost projections out to 23 years, you know you have some i diots in charge.

When global warming is finally put to rest as a hoax, gas and oil prices will plummet and HECO will be holding a 20 year contract to buy biodiesel at $25 per gallon for 20 years, while diesel drops to below $2 per gallon.

on October 29,2012 | 02:31PM
saywhatyouthink wrote:
lol.... that's hilarious.
on October 29,2012 | 11:38PM
islandsun wrote:
HECO is running a ponzi sheme. Class action lawsuit?
on October 29,2012 | 04:04PM
Papakolea wrote:
The thing that burns me up is that the PUC blindly accepts HECO's labor overhead factors. Anyone who drives by a HECO crew sees twice as many trucks and half the crew watching the other half work.
on October 29,2012 | 08:51PM
saywhatyouthink wrote:
Or maybe if they didn't pay their executives outrageous salaries, I mean multi million dollar salaries rates might be more competitive with other utilities.
on October 29,2012 | 11:35PM
saywhatyouthink wrote:
Wow... heco charges Oahu triple the national average and Big Island quadruple. .41 a kwh and they want to raise it higher yet, that's just crazy. Ratepayers rise up and revolt against the monopoly rip off.
on October 29,2012 | 11:32PM
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