Rejection of biofuel plan is a huge setback for isles

Local biofuel is the latest target in the war against renewables, and now the state Public Utilities Commission has issued a ruling based on its concern that biofuel will cost too much. Is that concern valid or shortsighted? Will it take us forward or back?

In 2010, Hawaiian Electric Co. sought to obtain competitively priced biofuel. It chose Aina Koa Pono as the best qualified and negotiated a biofuel purchase agreement for 16 million gallons annually for 20 years at a fixed price. This would create 300 construction jobs and 100 operational jobs and resurrect agriculture in Kau, on Hawaii island.

It was a dream deal: local company, local investment, local labor, local feedstock, sending less money overseas, increasing energy security, reducing vulnerability to oil volatility, producing utility-scale renewables that can be shipped anywhere in the state without waiting for an undersea cable, building the economy and making us look good. So good, you’d think we’d snap it up.

AKP planned to build a $350 million, 13,000-acre, cutting-edge biofuel "energy farm" on private land that had been fallow for decades.

In January 2011, HECO asked the PUC to approve the contract and the related biodiesel surcharge. Consumer advocate Jeff Ono found that the contract was reasonable and in the best interest of the consumers.

Ten months later the PUC rejected the contract on the basis that the price was "excessive, not cost-effective, and thus unreasonable and inconsistent with the public interest." Its decision focused on the difference between the price and long-term oil forecasts that are predictably unpredictable. It did not respond to AKP’s calculation that the contract would only add $2 a month to the average consumer utility bill. Nor did it address the consumer advocate’s finding or the state’s clean-energy goals and policies.

The law specifically requires the PUC to consider "the long-term benefits of projects that may incur larger short-term costs" than fossil fuel. Shouldn’t the PUC have found that higher short-term costs are justified by our energy goals?

These energy goals (to reduce dependency on imported oil, develop local renewables and enhance energy security) and our broader economic goals (to develop a diversified and sustainable economy) are deeply embedded in state law and recognize the need for substantial investment to attain these goals.

Neither the parties nor the administration liked this decision. HECO publicly expressed its disappointment and asked the PUC to extend its time to contest the ruling. The consumer advocate asked that the PUC "clarify" its ruling. AKP is moving to sell its biofuel to a mainland oil company for more than the price with HECO.

Right now there is no other utility-scale source of biofuel in Hawaii. The actual price of the AKP biofuel was sealed by the PUC and is not public, but it’s likely to be less than the cost of biofuel shipped in from the West Coast. So now HECO has the Sophie’s choice of using imported biofuel at a cost greater than local biofuel or continuing to use imported oil for its generating plants.

Like the PUC’s decision on Big Wind, the biofuel decision puts us back years and demoralizes the industry. It doesn’t provide a solution, but only a barrier. It rejects the arm’s-length deal negotiated by the parties and approved by the consumer advocate, and deprives Hawaii County of huge economic benefits. This is not progress.

These decisions make our energy initiative a lot harder and less promising. They cast a long shadow over our energy aspirations, and will affect every one of us. If we fail to move ahead now, we’ll pay more to move ahead later. Mark Glick, our new energy administrator, has his work cut out for him.

No question that the work of the PUC is challenging. But next time, to avoid the severity of a yes-no result, perhaps the PUC could make these pricing parameters public and have its staff negotiate or participate in a mediation to achieve a business resolution that will save biofuel and get us back on track.

Jay Fidell, a longtime business lawyer, founded ThinkTech Hawaii, a digital media company that reports on Hawaii’s tech and energy sectors of the economy. Reach him at fidell@lava.net.