Customers of Maui Electric Co. will see a slight reduction in their bills as a result of an agreement that reduces the amount the utility pays for electricity generated by the island’s only operating wind energy project.

The agreement eliminates a feature of MECO’s power purchase contract with the developer of the Kaheawa Wind project that had linked the cost of electricity produced by the facility to the price of fuel oil. The state Public Utilities Commission approved the contract amendment Tuesday.

The original 20-year power purchase agreement approved in 2005 was structured so that 30 percent of the electricity the wind project produced was priced on an "avoided cost" basis, the cost that MECO would have pay to generate the electricity using fuel oil. Avoided cost contracts were used previously to provide developers with an incentive to build alternative energy facilities. They are no longer used.

Under the old contract MECO paid developer First Wind LLC a composite price that included the 30 percent based on avoided cost and 70 percent at a fixed rate. The amended contract calls for MECO to pay First Wind a single fixed rate that is below the expected cost of fuel oil over the life of the contract.

A PUC analysis of the amended contract estimates that it will save MECO residential and business customers about $5 a year, or $330,000 in total, according to Lt. Gov. Brian Schatz.

"The economic benefits of the renegotiated contract are enormous," Schatz said. The 30-megawatt Kaheawa Wind produces about 10 percent of Maui’s entire annual electricity requirements. "And the price of this wind power is now substantially below the current cost of generating power using oil. With the new contract, as the price of oil goes up over time, the ratepayer savings will increase," Schatz said.

A First Wind spokesman said the company agreed to amend the contract to be consistent with newer wind energy projects it has developed in Hawaii.

"First Wind is pleased to have PUC approval in the restructuring of this power purchase agreement," said Kekoa Kaluhiwa, First Wind’s director of external affairs in Hawaii.

"All of First Wind’s other Hawaii projects have fixed pricing, and are currently near or below the utilities’ avoided cost. As the price of oil continues to increase, these wind projects are expected to save ratepayers money and provide cleaner, more affordable energy," he said.